Forecasts Show Pound, US Dollar Strength Possible - But Euro Declines Possible

We see growing expectations for a return to form in the British pound (GBP) which has suffered somewhat through the summer weeks but struggle to take an overtly bullish tone on the sterling dollar rate owing to the underlying strength seen in the USD.

Latest Rates for Your Reference (03/09):

1. The pound to dollar: 1.6470.
2. The pound to euro: 1.2542.
3. The euro to dollar: 1.3134.

PS: The above quotes are mid-market, your bank will affix a spread at their own discretion. However, an independent FX provider will seek to undercut your bank's offer, delivering up to 5% more FX in some instances.

British Pound Exchange Rate Forecast: Mortgage Approvals, PMI, Bank of England

The pound sterling has enjoyed a return to form towards the end of August.

Momentum is returning and we could see some new highs reached.

Morgan Stanley echo this sentiment:

"We still like GBP on crosses as we believe the BoE is likely to be among the first central banks to hike. Though data has moderated somewhat, it remains at robust levels that should support the currency."

However, there could be value in betting against the pound using the dollar:  

"In addition, positioning has neutralised, suggesting room for additional longs. That said, we are more cautious on GBPUSD strength in light of the USD rally we expect. We maintain our sell on rallies stance towards GBPUSD, but look to buy GBP on the crosses."

US Dollar Exchange Rate: More Gains?

Morgan Stanley tell us they are bullish on the dollar saying the mid-year rally has further to run:

"We believe that the USD rally has further legs but needs the help of rising long-term US bond yields to see gains against higher-yielding currencies.

"Non-synchronised growth has allowed US bond yields to remain low for now. We emphasise USD long positions against low-yielding DM currencies: EUR, JPY and CHF.

"The focus for the market remains whether US data comes in strong, therefore we will be watching the ISM and then non-farm payrolls."

Euro Exchange Rate: More Losses?

This is undoubtedly a big month for the shared currency largely thanks to the event risk that comes in the form of the European Central Bank's policy meeting.

The ECB is tipped, by some, to be ready to pull the trigger on private quantitative easing.

Morgan Stanley confirm they are staying negative on the euro dollar rate:

"We remain bearish on EURUSD but look to take profit at 1.31. After, we expect a correction higher, where we would look to sell again. We note that our positioning tracker is currently at -6.

"In the past when it has reached around these levels, there has been a EURUSD rebound. So with the extreme positioning, we will be watching for any positive data out of the EUR area that could, cause the rebound and provide better levels to sell at. This week the focus will be the ECB and if they sound dovish."