Pound Dollar Rate Within Touching Distance of Scotiabank's Year-End Exchange Rate Forecast

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Near-term forecast for GBP-USD, more gains in store?

The recent short-term forecast for the pound dollar rate has been mixed with a bout of weakness taking us up to the Tuesday inflation report release.

However, with such a strong showing in the inflationary reading we would suggets near-term forecasts are due to be revised higher as short-term resistance levels continue to be breached,

"In the longer term, the break of the major resistance at 1.7043 (05/08/2009 high) calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923 (18/06/2014 low)," says a note from Luc Luyet at Swissquote Bank.

Adding to the positive technical picture facing cable is the underlying fundamental picture which suggests interest rate rises will start to happen within months - rising interest rates are a currency-positive.

All indictions from Governor Carney are that interest rate hikes are likely to begin earlier than the market expects but prove slow and cautious, ultimately peaking at lower levels than they would have historically suggests Sutton.

"Financial stability risks are certainly a concern for the UK and Governor Carney and this is likely playing into the interest rate stance. For GBP, the near-term outlook is still relatively strong; but we’d expect gains to fade into year‐end, holding a Q414 target of 1.70," says Sutton.

US dollar to face US Fed Chair Yellen on Tuesday

The near-term forecast for the pound dollar exchange rate will now likely be determined by the viewpoint held at the US Federal Reserve. Boris Schlossberg at BK Asset Management Schlossberg comments:

"This week's testimony by Janet Yellen could be key to the greenback movements. Ms. Yellen has been a staunch dove, suggesting that rates are likely to remain at the current level until well into 2015.

"However, this weekend's article by Jon Hilsenrath of the Wall Street Journal suggests that some FOMC members are beginning to warm up to the idea of an earlier timetable for a rate hike given the better than expected US employment picture.

"If Ms. Yellen echoes those sentiments in her testimony this week, the EUR/USD could see another leg down as US rates respond accordingly."

Such a move would in turn hit the GBP/USD lower as there is little on the domestic front to bother the pound sterling at present.