GBP, Euro and US Dollar: Exchange Rate Predictions for the Near- to Medium-Term

Modified: Thursday, 24 July 2014 09:12 BST
Written by: Will Peters

The British pound (GBP) meanwhile remains vulnerable to corrective moves lower against the USD which is the currency to beat at the present time.

Exchange Rates Today, Latest Mid-Market Rates at time of writing:

Pound to euro exchange rate: 0.09 pct lower at 1.2649.
Pound to dollar exchange rate: 0.04 pct lower at 1.7038.
Pound to Aus dollar rate: 0.07 pct higher at 1.8040.
Pound to Canadian dollar: 0.04 pct lower at 1.8285.

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GBP Outlook: Further corrections lower in the near-term?

A broadly stronger greenback coupled with another less than robust reading on the U.K. economy had sterling modestly in the red against its U.S. rival.

Commenting on the prospects of the pound sterling in the near-term ahead, Lloyds Bank Research tell us:

"GBP/USD broke lower last week, making a low of 1.7037. GBP had been trading with a mildly corrective tone. This is helped by the paring back of rate hike expectations following the weaker earnings data, which provided further evidence that despite the jump in the June CPI, underlying inflationary pressures in the UK economy remain benign.

"IMM data shows GBP long positions declined further in the week to 15 July, and the break lower in GBP/USD on Friday will likely have triggered further squaring of GBP longs. With GBP long positioning now a lot lighter, GBP will probably be more sensitive to positive data surprises than before. However, a lack of positive surprises will likely see the mild corrective bias in GBP persist."

Euro Outlook: Rangebound or a relief rally?

The euro dollar exchange rate is at1.3522.

Commenting on the euro's prospects, Lloyds tell us:

"The USD failed to hold on to gains on Friday after EUR/USD and GBP/USD broke lower. EUR/USD broke below the 1.3503 level, which has held since the June ECB meeting.

"While EUR/USD failed to sustain the break below 1.35 on Friday, we think bias remains to the downside. IMM data shows EUR short positions extended further last week and are at relatively extended levels now which perhaps suggest some scope for a bounce in EUR. However, with another tick lower expected in the July Eurozone 'flash' PMIs this week, the euro is unlikely to receive much respite."

Analyst Carl Hasty at Smart Currency Business believes the euro needs supportive data to push higher:

"The euro reached a landmark low on Friday as we saw it dip below €1.35 against the US dollar for the first time since February. As tensions in Ukraine escalated dramatically, the single currency breached the key technical level before recovering slightly.

This week, the key data releases are weighted towards the end of the week although we do have German inflation data being released today. French and German manufacturing data is set to be released on Thursday. French figures have been mixed over the last sixth months as have the German figures, although the German figures have at least shown consistent industry expansion."

USD outlook: Further advances?

EURUSD fell through 1.3500 to the lowest since February in recent sessions as the US dollar saw a return to form.

Many are now backing the USD to enjoy a strong end to 2014, and as such we should be wary of sustained strength.

US consumer sentiment dipped in early July while an index of consumer expectations weakened for a third straight month, coming in at 81.3, below both the consensus analyst expectation of 83 and the final June read of 82.5.

Regarding the euro dollar outlook, analysts at IFX tell us:

"The next level to watch is 1.3479, which is the February low with resistance above at 1.3539. Following Thursday afternoons plane crash and a day earlier the U.S. and the European Union announcing a fresh round of sanctions against Russia, following the annexation of Crimea in April and ongoing tensions in the rest of Ukraine. The U.S. package was the largest round of penalties so far."

Adding his predictions for the currency, Hasty says:

"Consumer Sentiment dropped below what was forecast on Friday of last week. However, its overall effect on the performance of the US dollar was limited. In fact, we saw the US dollar strengthen moderately against a number of major currencies on Friday.

"There are plenty of important data releases due out this week, starting with inflation data and existing home sales figures on Tuesday. Whilst the Chair of the Federal Reserve Janet Yellen has been explicit about the winding down of the US bond-buying programme, uncertainty remains over when interest rates will be raised. Data such as the Consumer Price Index (CPI) released on Tuesday will play a role in determining when indeed this will occur."