GBPUSD: Pound to Move Higher as US Dollar Strength Wanes
- Written by: Gary Howes
The GBP to USD conversion has been given the chance to recover from 1.5040 back to 1.53, and more gains are possible as the US dollar uptrend stalls.
The broader USD remains in a consolidation/correction phase, after the gains realised following the US employment data saw it get a little ahead of the US rates markets.
Can the move higher in GBPUSD continue? We think so.
Firstly, the technical picture appears to favour the pound over the dollar with the GBPUSD having just broken above its 50 day moving average at 1.5280. If this move can be sustained we believe momentum will take the pound back towards 1.54.
Market interest in chasing the dollar higher also appears to be waning.
Since the strong US labour market report for October, the market has largely priced in a first interest rate hike by the Fed in December taking away a crucial fundamental source of support for the Greenback.
The focus is increasingly on the question of what will happen after that first interest rate rise.
A useful piece of insight into the outlook facing the US dollar in 2016 has been provided by HSBC’s David Bloom who has suggested the outlook does not favour the dollar.
According to Bloom the narrative has shifted to what the Fed will do once the initial interest rate rise has been made - and this is not a pro-USD scenario. "The timing debate is hawkish whilst the levels debate is dovish," points out Bloom.
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.
The USD may make some gains against some Emerging Market currencies, "but we have it falling against the EUR and the JPY in 2016." We presume HSBC forecast pound to dollar rate losses also being a feature of 2016 based on this assessment.
FOMC members are not tiring of stressing that the key interest rate will be raised in this cycle at a much slower rate than in earlier cycles.
“Consequently, only two further rate hikes are being priced in by the market for 2016,” says a note from Commerzbank.
Ultimately though, the pace of rate hikes will largely depend on how the economic data turn out.
The figures due next week on the private consumer spending deflator (PCE), the Fed’s preferred yardstick for inflation, should also give an indication of how quickly the next rate hike could follow after lift-off in December.
“One thing is clear: the stronger the inflation pressure, the faster the Fed has to increase interest rates. Therefore, if prices rise at a sharper rate than expected, this should give considerable impetus to inflation expectations for the coming year and thus also to the US dollar,” say Commerzbank.
“On the other hand, a weak result would merely confirm the already very moderate market expectations at present.”
