British Pound / US Dollar Struggles to Find Support
The pound sterling had bounced off a solid support zone against the US dollar but the release of strong GDP and jobs data has since scuppered the recovery.
The pound to dollar conversion has been caught in a range between 1.54 towards the bottom and 1.57 towards the top since early July.
Interestingly, the GBP/USD fell the entire width of that range in just one day:
This is a telling graph as it confirms technical analysis does indeed have a relevance to predicting currency moves.
However, the release of a strong set of GDP numbers out of the US on the 27th of August is threatening to nullify the validity of the recent range.
An alternative technical forecast issued by EasyForex hours earlier warned further declines were possible and called for short positions below 1.56 with targets at 1.545 and 1.541 in extension.
For them the 1.56 level is a pivot and only once the GBP/USD breaks above here will they call for more gains.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3332▲ + 0.05%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2879 - 1.2932 |
**Independent Specialist | 1.3146 - 1.3199 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
The move higher in the USD comes despite a second Fed member, Dudley, has now suggested that the market turmoil might delay rate hikes. Futures are still predicting a 24% probability of a move in September.
Watch out for further Fed commentary at, or on the sidelines of, the Fed’s Jackson Hole symposium.
US Data Confirms Interest Rate Support for USD
There had been growing concerns of late that the US Federal Reserve would shy away from raising interest rates in September.
The second estimate of Q2 GDP revised up growth to 3.7% q/q saar, above consensus expectations (3.2%) due to a larger-than-expected revision to portions of fixed business investment and government spending.
"We view the second quarter revisions as encouraging on balance, but also note that these statistics are stale in the minds of FOMC policymakers relative to the recent volatility in financial markets," says Barclays analyst Jesse Hurwitz.
Meanwhile jobless claims improved to 271,000, down from 277,000 last time and forecasts of 274,000.
The economy’s resilience this week suggests a higher likelihood of the Fed raising rates at one of its three remaining meetings this year, bolstering the dollar’s broader outlook.
It appears that momentum is firmly back in the dollar's camp and we could well see further GBP/USD weakness from here.
A Better Week Ahead for Pound Sterling?
Markets have pushed back expectations for the first BoE hike to August 2016 following “Super Thursday”, as well as the market turmoil of the past couple of weeks and dovish comments from Fed policy makers. We think this is too far out.
“We see a BoE move by 25bp in February. Markets will likely adjust their assessment as they digest the massive moves seen this August. We expect confidence to return to markets soon on the back of positive fundamentals,” says a foreign exchange note from UniCredit Bank.
For the UK, the upcoming PMI data could be a starting point.
Manufacturing will likely slow down to 51.5 as the sector continues to struggle from sterling’s appreciation.
“But on the back of strong consumer confidence and a pick-up in wage growth we continue to see the services sector as robust at 57.5. Short-term, there is a risk that this may not be enough for cable to revert back to its upward trend, but we expect this to correct over a medium-term horizon,” say UniCredit.
