British Pound: Sterlings Outlook is Bright, BUT it All Hinges on This Week's Data
- Written by: Gary Howes
-
The British pound (GBP) is firm on Monday, however this promises to be a busy and pivotal week for the UK unit.
Outlook for the Pound Sterling: The GBP exchange rate complex is firm on Monday with gains being seen against the EUR and USD, furthermore the currency has stabilised against the commodity dollar complex. UPDATE: Tuesday sees Manufacturing PMI data disappoint, the UK unit slips back as a result.
A look at the below shows the all-important pound dollar exchange rate has enjoyed a firmer latter half of March:
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What will determine the outlook for GBP?
Concerning the coming week, Kathy Lien at BK Asset Management says:
"The outlook for sterling is bright but further gains hinge on this week's PMI reports. If service, manufacturing and construction sector activity continue to improve, GBP/USD could test its 4 year high of 1.6822."
Regarding the PMI data:
- On Tuesday, Markit Manufacturing PMI (Mar) is expected at 56.9.
- On Wednesday, PMI Construction (Mar) expected at 63.0.
- On Thursday we get Markit Services PMI (Mar) expected at 58.1.
Analysts at Italy's UniCredit suggest the pound will probably struggle to eke out further gains against the US dollar and Euro in the week ahead:
"While we expect both the manufacturing and the service PMI to slightly ease from elevated levels seen last month, the construction PMI will most probably be boosted by benign weather conditions in March.
"Cable might have a hard time to develop significant upward potential due to even stronger US data, but should be able to broadly defend current levels. As for EUR-GBP, we expect levels of just below 0.83."
Australian dollar to advance further
Meanwhile, we continue to keep an eye on the commodity dollar complex. The Australian dollar has enjoyed a particularly strong March, and one analyst tells is the potential for even deeper declines remains a possibility.
TD Securities analyst Shaun Osborne tells us:
"GBP/AUD remains at risk of a deep slide. Losses have slowed through the end of the week but trend momentum is bearishly aligned across the longer-term studies and monthly price action (bearish key month reversal is all but certain) suggests a major turning point in this cross.
"We look for limited gains (1.81/1.83 at most) from here and, with the GBP sliding below the neckline of the bearish H&S reversal that formed up through the early part of this year, a drop to 1.7150 (measured move target) beckons."