Pound Dollar Rate: This is the Comeback
The pound to dollar exchange rate (GBP-USD) has broken a key resistance zone and is now advancing.
The dollar fell into a deeper hole after another batch of forecast-missing U.S. data suggested the Fed would leave interest rates low for longer.
The move comes as markets continue to factor in a period of USD softness after the recent tear higher.
That said, the rally is not over and one analyst reckons the move will likely restart in September.
“GBP/USD finally broke the 1.48 resistance (multiple low and Fib 23.6% on Feb-Mar sell-off) to trade higher up to 1.4880. The sterling is currently heading back and will try to convert this level into a support,” says Arnaud Masset at Swissquote Bank.
Converting British pounds into US dollars is currently done so off a spot rate of 1.4906, this is 0.34% higher than seen at last night’s close.
Converting dollars to pounds sees a rate of 0.6708.
We are seeing Barclays, Lloyds and HSBC offers on sterling-dollar averaging around 1.4498. Retail specialist RationalFX is quoting closer to the market at 1.48. Find out more.
Is this the GBP-USD Comeback?
As Masset mentions, the Cable could be carving out a new support zone at 1.4880 from which further USD pressures will be thwarted.
Below 1.48 we have 1.47 looking solid and the absolute minimum is at 1.4586.
Gains towards 1.50 are easily achievable in my opinion.
“On the upside, the next key resistance stands at 1.50 (multiple high and psychological level); the pair will need fresh boost to break that resistance and it may come from the US this afternoon as the Initial Jobless Claims and Housing Starts are due, a lower read could send the sterling higher,” says Masset.
Why the USD is Under Pressure.. For Now at Least
The dollar fell into a deeper hole after another batch of forecast-missing U.S. data suggested the Fed would leave interest rates low for longer.
Weekly jobless claims increased to 294,000 from 282,000, missing forecasts of 280,000.
The rally in the dollar exchange rate complex has been impressive, but markets don’t run in a straight line forever.
The fundamentals continue to point to the starting of an interest rate raising cycle in 2015 - an all-out positive for the Greenback.
However, “the recent run of softer-than-expected US data is starting to weigh on the USD and adds conviction to our belief that the USD is going to remain in a choppy range for a while,” say Lloyds Bank Research in a note to clients.
Lloyds geel that the recent bout of strength post payrolls and the Fed minutes was out of line with the rates market and should see a pullback.
“This is starting to play out with a number of short term important technical breaks adding to this short term conviction. Medium term we remain USD positive,” says the bank in a note to clients on Thursday.
As mentioned though, the softness in the USD is likely to be temporary.
“Maybe it is only when, and if, the data improves that the dollar will rally again, even with the ECB’s relentless QE programme. The Fed certainly thinks it’s only a case of when: the Beige Book report released yesterday saw weakness as being temporary, with good outlooks in all the regions,” says John Cairns at RMB.
While the USD still has potential upside in the long run, we note that the GBP may not be the best currency to express this scenario against.
The pound to dollar exchange rate is at historical lows, and with the Bank of England likely to start raising rates towards the end of 2015 we see the potential for a stronger GBP to grow.
