Has the Pound / Dollar Exchange Rate Hit the Limit? Fed Speakers Boost USD
- Written by: Gary Howes
The British pound to US dollar exchange rate (GBPUSD) rally appears to have stalled - giving credence to those investment banks advocating negative strategies on the UK currency.
1 GBP to USD is converting at 1.5467 on Tuesday morning - 24 hours previously the exchange rate was at 1.5540 and at the top of its recent ranges.
The GBPUSD bottomed at 1.5163 on the 4th of September before buying interest enabled a strong recovery rally towards present levels. For now the pair appears to have stalled.
The currency pair has crossed below the 20 and 50 day moving averages on the daily charts confirming near-term momentum has turned negative.
Fundamentally, it was the US Federal Reserve’s decision to keep interest rates on hold that prompted a sharp sell-off in the US dollar exchange rate complex over recent days.
However, the new week has seen a flurry of activity by US Federal Reserve members to backtrack on the USD-negative theme. "USD continues its rebound from the post-FOMC meeting lows as the latest stream of Fed speakers suggest that the FOMC statement and Chair Yellen’s press conference was interpreted as too dovish," says a daily strategy note from ING Bank.
Williams and Bullard were joined by Lockhart yesterday calling the Sep decision to retain rates on hold “a close call”.
"The market pricing for the Dec Fed funds rate hike increased to 49%. With the notion of the Fed’s policy tightening this year regaining traction, the focus will be back on the US economic data, mainly the Sep US labour market report on 2nd Oct," say ING.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3344▲ + 0.14%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2891 - 1.2944 |
**Independent Specialist | 1.3157 - 1.3211 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Will the Pound Sterling Fall?
There are some leading analysts that have suggested that the present strength in Cable is unsustainable and GBPUSD has thus become a viable strategic Sell.
Strategists at JPMorgan have told clients they favour selling the GBPUSD on strength, the investment bank is anticipating a decline to 1.4950:
“The market has reached the key-resistance zone on big scale between 1.5663 and 1.5749/1.5815 (int. 76.4 % on 2 scales/pivot) where a countertrend rally would distinguish itself from a broader up-trend into at least 1.6188 (61.8 % on higher scale).
“That said and as long as 1.5815 is not taken out we see a high risk of at least missing another leg down to key-support at 1.4951/1.4887 (pivot/int. 76.4 %) with the option to resume the long-term downtrend. A slight extension up to 1.5749/1.5815 can however not be excluded in the moment, which we’d use to add up. If the market opts for a straight reversal down we’d do so on a break below 1.5533 (minor 38.2 %).
“Strategy: We sold at 1.5642, add at 1.5745 or at 1.5510 on stop, targets 1.5100 & 1.4970, stop at 1.5850.”
Also strategically targeting a weaker British pound is Morgan Stanley.
In a note to clients they say they are turning negative on the UK currency:
“We believe that with near-term rate expectation support not as powerful as previously assumed, GBP could now become exposed to longer-term bearish factors.
“As a result, we would continue to recommend using rebounds to establish bearish strategies. We expect near-term GBP/USD corrections to be limited to the 1.5450 area, which will provide opportunities to enter short positions, with an initial target of 1.4800. Stops on such positions should be placed at 1.5600.”
On Friday, the Fed decision to keep rates unchanged created serious nervousness on global markets. Initially, the risk-off sentiment weighed on the dollar, but the losses were moderate given the volatility on other markets.
During the day ECB members reiterated their soft rhetoric.
ECB’s Praet confirmed that the ECB is ready to easy policy further. The dollar ‘easily’ reversed the post-Fed losses.
EUR/USD closed the session at 1.1298 (from 1.1435 on Thursday evening), close to the levels that were on the screeds before the Fed meeting).
Even USD/JPY regained a big part of the post-Fed losses, even as equities closed deeply in the red. USD/.JPY ended the week at 119.98, little changed from Thursday’s close of 120.01.
"We start the week with a cautiously USD positive bias.We also look out how the link between equities and the dollar evolves. For now, the risk-on/risk-on risk-off trade link of the dollar looks like it has been broken. We think this link won’t be restored anytime soon. (Divergence) in policy intentions between central banks might be the key driver for currency trading in the near future," says Piet Lammens at KBC Markets in Brussels.
USD continues its rebound from the post-FOMC meeting lows as the latest stream of Fed speakers suggest that the FOMC statement and Chair Yellen’s press conference was interpreted as too dovish
