Pound Exchange Rate FORECASTS: GBP to Euro + Dollar Pairs Could be About to Head in Opposite Directions

For reference, at the time of writing the following levels are observed:

• British pound to euro exchange rate (GBP/EUR) is 0.29 pct lower at 1.2574.
• Pound to dollar exchange rate (GBP/USD) is 0.30 pct lower at 1.6835.
• The sterling to Australian dollar (GBP/AUD) is 0.17 pct lower at 1.8138.
• The pound to Canadian dollar (GBP/CAD) is unchanged at 1.8417.

Beware: The above quotes are mid-market and subject to a discretionary spread from your bank. An independent FX provider will however guarantee to undercut your bank's offer and in some cases can deliver up to 5% more currency. Please learn more.

Near-term focus for sterling

UK Manufacturing PMI will be in focus this morning and markets will be looking for indications of how activity in third quarter is shaping up.

In a currency note to clients, Lloyds Bank Research say:

"The market is expecting the index to slip marginally to 57.2; our economists are forecasting a larger fall to 57.0. In such an outcome it will further support current GBP/USD downtrend.

"Sterling has been under pressure for much of the month, even a slight upward surprise may not be sufficient to turn the current downtrend around. With the market likely to have an eye on US payrolls this afternoon, we expect market reaction to be relatively muted."

Pound euro exchange rate (GBP to EUR) forecast:

The image at the top of the page tells the story of the GBP to EUR at the moment.

The rate is clearly in an uptrend and there is absolutely no reason to question the ability of sterling to continue its climb higher as we move into a period of interest rate hikes in the UK.

However, technical resistance has been reached in the near-term and we would not expect any major moves until August at the earliest.

We would also not be surprise to witness the sterling euro slip back into the uptrend channel which we have drawn on the chart; such a move would mean at least a couple of months of sterling weakness ahead of steady climbs higher.

Sterling to US dollar rate forecast (GBP to USD):

The outlook for the pound dollar has certainly turned into negative territory, for the near-term at least.

Analyst Karen Jones at Commerzbank tells us the rate is facing a key support line:

"GBP/USD has eroded its 55 day ma and focus is firmly on the 2014 uptrend at 1.6910. We view the market as having recently topped at 1.7195 and the risk has increased that we will see a break below the uptrend now. Failure will trigger losses to 1.6694/30 then 1.6280/53 the 38.2% retracement of the move from 2013 to 2014 and the 2014 low.

"Current trade: Short 1.7103. Recommended Trade: Lower the stop from 1.7190 to 1.7080. Exit 1.6925."

Euro to dollar exchange rate forecast:

As mentioned, the euro is also suffering somewhat against a strengthening USD.

Karen Jones at Commerzbank tells us further losses should be expected at this stage:

"EUR/USD continues to grind slowly lower. A negative bias will remain entrenched below the 1.3550 2 month downtrend. Directly below we find the 1.3391/1.3385 55 MONTH ma and the base of the monthly cloud and failure here is expected to provoke another leg lower.

"A close below 1.3385 is expected to act as a catalyst on the downside and act as a trigger for a slide to the 1.3295November 2013 low en route to 1.3020/00, the 50% retracement of the move up from the 1.2042/July 2012 low.

"Current position: Square Recommended trade: Reinstate shorts on rallies to 1.3485, add 1.3525, stop 1.3560."

There will barely be time to pause for breath

Expect hightened currency market volatility as we move through the mid-week trading session.

"There will barely be time to pause for breath today once US data starts emerging, with ADP numbers kicking off the afternoon, followed swiftly by US GDP and then the Federal Reserve meeting. It feels like markets have been on hold for the week so far, seeing jumpy trade on conflicting expectations about the outcomes today," says Chris Beauchamp at IG.

Sentiment still seems weak following news of fresh sanctions against Russia, so a weaker ADP or GDP number could see the selling of yesterday turn into something more serious.

Ahead of the open, IG expect the Dow Jones to open 14 points higher at 16,926.