Pound-to-Dollar Week Ahead Forecast: Still Bullish

Image © Adobe Images

The pound to dollar exchange rate opens the new week at 1.3654, comfortably cocooned within last week’s trading range and holding above key technical support.

The setup remains constructive; spot is trading above the 21-day moving average (MA), a signal that upside momentum is still intact and that the broader trend continues to favour sterling.

The recent pullback from 1.3850 to 1.3550 is still viewed as corrective, unwinding previously overbought conditions rather than signalling a structural shift lower.

Only when the nine-day MA crosses below the 21-day MA will we receive confirmation the short-term trend has switched from up to down. 

This is a particularly useful structure to apply to near-term USD technical analysis as it has proven a sound approach over the course of the past year.

From here, we're looking higher to 1.37 as the immediate objective for the coming week.

The recent pullback looks to have faded in intensity, confirmed by last week's supportive price action above 1.36, which now looks to be an interim floor.

"GBP/USD is still in healthy shape. The market rejected a dip back into the December range and we’re now consolidating the push above 1.3600. This could take some time, but the prevailing trend remains up," says Nick Kennedy, FX strategist at Lloyds Bank.

Where GBP/EUR is the play on UK-specific risks and data, the overarching theme in GBP/USD is ongoing dollar weakness.

The AI-linked tech selloff is another arrow for the bow of the USD 'de-exceptionalism' trade where the currency is sold on rising U.S. risk premia.

"US outperformance is behind us and global investors are realizing that their portfolios now has too much US assets in them. There is room for more USD weakness, but this process takes time," says a recent strategy note from Nordea Markets.

🎯 GBP/USD year-ahead forecast: Consensus targets from our survey of over 30 investment bank projections. Request your copy.

Interestingly, the USD is proving relatively unfazed by U.S. data, which was confirmed by the sanguine reaction to the previous week's inflation and jobs data.

If the USD didn't react substantively to those headline releases, we doubt that this week's docket will play a role.

Nevertheless, the highlights for the coming week are the release of the Fed's meeting minutes on Wednesday and PCE inflation data on Friday.

Although USD is fully in charge, there could be some intraday volatility provided by Tuesday's UK labour market and Wednesday's CPI inflation data.

They should reinforce expectations for Bank of England rate cuts on at least two more occasions this year.

The UK unemployment rate should stay at 5.1% but the consensus expectation is for a drop in payrolled employment of 20K. Average weekly earnings are forecast at 4.6%.

On Wednesday, the consensus looks for a -0.5% m/m for headline CPI inflation, taking the annual rate to 3.0%. Core CPI is expected to fall to 3.1% and services CPI to 4.3%.

Should these data undershoot by more than expected, then GBP/USD can test last week's lows towards 1.36 where medium-term graphical horizontal support is located.

Bias: Mildly Bullish GBP/USD

- Early-week consolidation above 1.36
- Gradual push toward 1.37
- Dips toward 1.3580–1.3600 likely to find buyers
- No confirmed trend reversal unless price breaks and holds below the 21-day moving average
- USD weakness remains the dominant macro driver

Strategic Overlay: GBP/USD Payments

With the base case still for consolidation above 1.36 and a grind higher toward 1.37, those needing to buy dollars (sell GBP) can afford to be slightly patient and look to transact on strength, while keeping a protective fallback plan in case the pair dips back toward 1.36.

Those needing to sell dollars (buy GBP) face the greater risk in this scenario and should consider covering more of their requirement sooner, as further upside in GBP/USD would reduce the pounds they receive per dollar.

Get in touch with our partners at Horizon Currency to discuss your needs.