GBP/USD Rate Rises on USD Profit-Taking, But Advances Could be Limited
- Written by: Gary Howes
The pound to dollar exchange rate has advance as traders cut back on exposure to the USD having fully priced in an interest rate rise at the US Federal Reserve this December.
"We look for the correction higher to terminate around here and the market resume its down move." - Karen Jones at Commerzbank.
The catalyst for the latest push higher in the GBP to USD conversion was the release of minutes from the October meeting of the US Federal Reserve. There was nothing new for markets to latch onto wich has confirmed the belief that a rate rise is likely in December.
A bout of profit-taking on the Greenback has ensured the currency is on the back-foot right across the board.
Nevertheless, the British pound is struggling to convince us that it has the desire to move sustainably higher and looks to still be under the influence of the November downtrend.
This month has seen sterling reach a high of 1.5497 before plumbing a low of 1.5027 following those strong employment figures out of the United States.
"In the near term, a sustained break below 1.5200 we think will continue to open the way to 1.5140," says U.O.B analyst Quek Ser Leang from Singapore, setting out where the important technical lines for this exchange rate lie.
Looking at the other side of the move it is believed that only a break above U.O.B’s current tactical stop-loss at 1.5320 would indicate that a short-term low is in place.
"Otherwise, a move to 1.5090 cannot be ruled out just yet," says Leang.
The sense we are getting is despite the British pound looking unsure of itself the bottom is relatively well protected.
Lucy Lillicrap, who manages risk for clients at currency brokers AFEX, notes the angle of descent remains shallow and with a combination of psychological and channel support emerging towards 1.5000 downside risk effectively remains limited at present.
“If this level gives way further accelerated weakness would not surprise but in the meantime continued volatility is likely with nearby resistance limited until 1.5350 and then 1.5500,” says Lillicrap.
According to Karen Jones at Commerzbank while GBP/USD has held relatively steady it has not overcome any resistance of note.
"The near term corrective rebound has been rejected by cloud resistance at 1.5263 (this is on a 240 minute chart). We look for the correction higher to terminate around here and the market resume its down move. Resistance above here intensifies and is likely to provoke failure, the 200 day ma lies at 1.5343 and is expected to cap," says Jones.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3342▲ + 0.12%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.2889 - 1.2942 |
**Independent Specialist | 1.3155 - 1.3209 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
US Fed Minutes Confirm December Rate Hike Expectations
The release of FOMC minutes provided us with a particularly hawkish view, yet global markets trended counter to the monetary policy implications, with a rally in indices and a fall in the US dollar.
"The meeting took place prior to this month’s bumper jobs report, which highlights that, barring an absolute shocker in December, Janet Yellen and co can achieve the 2015 hike they seek," says a briefing from IG.
Strategists continue to favour the US dollar over the longer time frame and we hear from traders they will be looking for any bouts of weakness to reload on further buying opportunities.
