Dollar Rate Today: GBP Back above 1.6; But Mysteries of Last Week's Declines Advocate for Fence-Sitting

The pound sterling to US dollar exchange rate is today in recovery mode; GBP/USD is quoted as being 0.32 pct higher on a day to day basis at 1.6061.

The US dollar to pound sterling exchange rate is thus at 0.6226.

Despite last week's jitters concerning this currency pairing the exchange rate is still 2 and a half percent higher than it was a month ago.

(Are you looking to secure these strong rates for a future FX transaction? Get in touch with an independent FX provider and talk about establishing a forward contract to protect against future declines.).

The outlook for the pound vs US dollar remains hard to call with divergent views being held by those prominent currency market analysts we regularly follow.

No reason for GBP to decline say Lloyds

Lloyds Bank Research have today told clients that they expect GBP strength to resume this week:

"GBP gains last week helped by safe-haven demand were pared back on Friday following the failure to break through the 1.6250/60 area. However, with no resolution from the US over the weekend, we expect USD weakness against GBP to resume.

"There is little case for GBP to weaken, especially following the strong PMIs last week.  We expect moves in GBP/USD will likely remain driven by developments from the US, with good initial support around the 1.60 level."

Pound vs US dollar exchange rate at attractive selling levels

While Lloyds Bank strike a more positive view on the pound dollar rate we note that the severity of the declines witnessed on Thursday and Friday last week have turned the charts decidedly more bearish on sterling.

Thus, there are also a good deal of forecasters who advocate for selling the UK currency.

Leander Dreyer gives a compelling case for selling the UK currency in his most recent note, which is dealt with in detail here.

In addition, Luc Luyet at MIG Bank says he is suggesting traders sell the British pound:

"GBP/USD declined sharply last Friday breaking the support at 1.6129 (see also the short-term rising trendline). A key support stands at 1.5956. Resistances can now be found at 1.6178 (04/10/2013 high) and 1.6260.

"In the longer term, prices are close to the strong resistance area between 1.6302 (30/04/2012 high) and 1.6381 (see also the long-term declining trendlines). Given the increasing overbought conditions, we would be medium-term cautious on GBP/USD, as it has already priced in a lot of positive news."

Emmanuel Ng at OCBC Bank says he is predicting pound vs dollar to consolidate at current levels:

"Despite a fairly supportive streak of recent data releases, the GBP-USD succumbed to background US fiscal jitters on Friday with the pair consolidating back below 1.6100. In the near term, expect the pair to attempt to base build around the 1.6000 neighborhood and failing which, a test towards 1.5940 cannot be ruled out."

The mysteries of sterling's declines and why we would sit on the sideline

For us at Pound Sterling Live we would be quite happy to sit on the sidelines. While recent momentum certainly has turned against the British pound we must consider that much of those declines could be classed as a one-off event.

ANZ Research give a short, yet important, comment on the mystery behind last week's declines:

"GBP suffered from a rumoured large sell flow, which if true, could see some reversion this week as liquidity returns."

When rumours are cited as a reason for a currency's decline we find no better reason to sit back and watch markets correct themselves before taking positions.