Pound in 'Relentless' Decline Against the US Dollar
- Written by: Gary Howes
The pound to dollar exchange rate (GBPUSD) has been relentless the last days, breaking a number of important technical supports and focus is now on the 1.5175 key technical support region.
According to Lloyds Banking Group there are risks for a much deeper decline, but if support at 1.5175 holds today, Chairwoman Yellen's speech tonight will be the deciding factor in terms of driving the broader USD into the weekend.
1.51 forms the bottom of a range that has dictated trade in the conversion rate since May of this year.
A break below 1.51 immediately opens the prospect of a decline towards 1.45 - the 2015 lows seen back in April.
If sterling does get caught around these levels then we could well see it moving sideways in this range and those hoping for better exchange rates may be out of luck for a long time.
"Sterling’s downswing gathered pace as it notched two-week lows Wednesday, shedding nearly 4 cents from Friday’s three-week peak. Sentiment has dimmed on the pound as skittish market confidence has buoyed haven units like the dollar and yen," says Joe Manimbo at Western Union.
Sterling appears to be caught in limbo with markets not knowing how to assess the chances of a BoE rate hike given the recent developments in markets and the ‘delay’ of a Fed rate hike.
It also hasn’t helped that parts of the U.K. economy have shown moderation, slightly raising the bar to a British interest rate hike.
What is desperately need for those hoping on a stronger GBP are signs that the Bank of England is confidently moving towards raising interest rates for the first time in years. Until then watch technical levels - we have a feeling that support at 1.51 will hold owing to a lack of fundamental reasons for a decline below here.
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.
Yellen Key to the Pound / Dollar Outlook
Today, there are no economic data releases due out of the UK and global factors will therefore set the tone for sterling trading.
Despite last week’s decision to maintain its policy rate target range at 0-0.25%, the dot plot of FOMC members’ policy expectations revealed that most expect a 25bp tightening before the end of the year.
FOMC Chair Janet Yellen’s speech this evening will be pored over for clues on her thinking about this prospect.
Ahead of her talk, US releases on August new home sales and durable goods orders (ex-transport) are expected to confirm the underlying strength of the domestic economy.
US Data Fails to Impress
Data-wise the September Richmond Fed manufacturing index reading came in on the soft side.
The data printed at -5 versus 2 median forecast, compared to a reading of zero a month earlier. The data release was one factor that lead to a softening in the dollar rally.
After dropping more than 2% in a couple of days, the sterling found strong support slightly above the 1.5330 level, implied by the low from September 15th.
GBPUSD has been relentless the last days, breaking a number of important technical supports and focus is now on the 1.5175 key technical support region.
