British Pound Exchange Rate Outlook Improves as Inflation Falls Less Than Expected

By Will Peters

Pound Sterling Live considers the outlook for the main GBP pairs that we follow.

The British pound (GBP) erased all of its earlier losses to end the day unchanged against the U.S. dollar and euro on Tuesday. The currency saw attempted breaks higher elsewhere but ultimately markets were unwilling to over-extend positions ahead of Wednesday's release of labour market data.

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Outlook for the British pound sterling

"Today’s UK CPI data could be slightly negative for GBP, since even though a dip to 1.6% is probably temporary, due in part to the late Easter, it will be seen by some as a reason to further delay expectations of the first UK rate hike," say Lloyds Bank Research in a morning currency brief.

In practice though tomorrow’s labour market data is more significant as a barometer of likely rate hike timing.

Pound dollar exchange rate outlook

"But with US CPI likely to rise and GBP positioning already a bit stretched, GBP/USD may prove a little vulnerable today. There may be potential for a dip into the low 1.66’s based on the recent correlation with short term yield spreads, but the underlying picture for GBP/USD is still constructive," say Lloyds.

Karen Jones at Commerzbank comments:

"GBP/USD has come under increasing downside pressure following its failure at the 1.6822 recent high. The Elliott wave count on the intraday charts is giving conflicting signals but it now looks less likely to extend to 1.6900. It is looking more likely that the market will simply fail here at the previous highs.

Current trade: Long 1.6737 Recommended Trade: Stop 1.6699, exit 1.6750 (sorry less enamoured with this trade. Resell 1.6750, add 1.6775, stop 1.6825."

Euro pound exchange rate outlook

Commenting on the outlook for EUR-GBP are FX Market Alerts:

"Setback from above the .8300 level sees the market steadying at .8253 low.

"Nearby see the .8246/31 lows to watch and break here needed to trigger further decline to the .8200 level. Upside see resistance at .8290 then the .8315/29 area. Would need lift over this to return focus to the .8400 level."

Commerzbank's Jones says:

"EUR/GBP saw a rebound as expected on Friday, ideally this will terminate circa .8313 the 3rd April high. However there is now scope for an extension to the 0.8330 zone. Our target remains .8210 en route to major support at .8160/59. Intraday Elliott wave counts are more positive and for now we will exit shorts.

"Current Position: Short .8289. Recommended trade: Exit at market (circa 8260). Look to resell the rally to .8310, add .8330, stop .8350."

British pound vs Aus Dollar

The UK currency has seen relief overnight against the Australian currency with the release of the minutes of this month's RBA policy meeting.

The minutes again noted that the AUD remains high by historical standards and echoed the words of the post-meeting statement that the degree to which the exchange rate would assist in achieving balanced growth was less than previously expected given the rise in the exchange rate.