British Pound, Euro, US Dollar: Latest Forecasts for G3 Exchange Rates as EUR Hit by Russian Sanction Fears

Modified: Friday, 25 July 2014 11:34 BST
Written by: Will Peters

For exchange rate markets the correction lower in the GBP will remain a key theme with little respite offered until some really good UK data is found.

The US dollar rally is also worth watching while the euro's exposure to events in Eastern Europe will be the main driver for the euro.

Before looking at the latest technical forecasts, the following spot market rates are on offer in the final trading session of the week:

The pound to euro exchange rate (GBP/EUR) is lower at 1.2618. It has been a downhill slope from the high of 1.2700 registered on Tuesday.
The pound to dollar exchange rate (GBP/USD) is slightly lower on a daily basis at 1.6970. The breach below 1.700 will worry sterling bulls who identify this level as a key psychological support level.
The euro to dollar rate (EUR/USD) is 0.10 pct lower at 1.3450, the gentle decline continues.

(Note: If you are hoping for a better exchange rate then don't hesitate, ensure your currency provider has the relevant stop-losses or buy orders in place. An independent FX provider could also execute your transaction at rates that can be up to 5% more beneficial than the rates offered by your bank. Find out more.)

US Dollar Forecast: Geopolitics, house sales and inflation dominate the outlook

Geopolitical tensions from the Middle East and Ukraine have weighed on market risk appetite sending the euro lower. Equity markets continue to struggle and the USD is a key beneficiary of safe-haven demand.

On-going concerns could see the USD remain supported thanks to these safe-haven qualities. Add to this the realisation that the US Federal Reserve is on track to tighten up monetary policy and we can understand why the USD is enjoying itself at present.

"EUR/USD made a new year low this week. There are no major releases from the Eurozone or US today, so with little to trigger a meaningful reversal, the downside bias looks set to continue in EUR/USD. The 1.3450/60 area will likely provide good initial support," says a currency update issued by Lloyds Bank Research.

Euro forecasts: Ukraine Risks, Euro Dollar Rate Biased to the Downside

The 'achilles heel' in the euro's outlook remains the ongoing geo-political tensions in Ukraine and the possibility of further sanctions being imposed on Russia.

What if the Eurozone is pushed into applying deeper sanctions, will this hurt the Eurozone's nascent economic recovery? How will this play out for French ship building and German appetite for Russian gas? With such uncertainties present don't expect a rush of euro buying.

According to Kathy Lien at BK Asset Management:

"The euro won't be immune if fresh sanctions are imposed on Russia. At bare minimum we expect business confidence to weaken with a possible decline in manufacturing and service sector activity. This week's German IFO and Eurozone PMI reports will most likely be affected by the ongoing tensions between Russia and the rest of the world."

Concerning the euro dollar exchange rate forecast, Lloyds Bank Research tell us:

"For EUR/USD, the underlying bias remains to the downside, but with no major data releases from the Eurozone today, EUR/USD will be dependent on USD sentiment. The 1.3550 area looks likely to cap the topside, while the year’s low of 1.3477 should provide decent support."

Pound sterling forecasts: GBP could head yet lower

There is a definite weaker tone to the GBP at present. We have already written about the need for a pullback in the pound exchange rate complex after a strong summer rally.

Pullbacks and corrective moves don't happen in a vacuum, Lien says the outlook for the GBP remains biased to the downside:

"The British pound traded slightly lower against the U.S. dollar following a decline in house prices. Online property portal Rightmove reported that house prices in the U.K. fell 0.8% in the month of July.

"This was the first decline in house prices in 7 months and they are likely to fall further according to Rightmove director Miles Shipside who said more houses are coming onto the market. They attribute the latest decline to everything from summer holidays, the World Cup, stricter rules on mortgage lending and suggestions from the Bank of England that rate rises could come sooner than previously expected. This last part is what investors are hoping for clarity on this week.

"The minutes from the most recent Bank of England meeting is scheduled for release on Wednesday and if there is more skepticism and reluctance to raise rates this year, sterling could test 1.70."

Lloyds Bank Research are however of the opinion that the GBP/USD will see support ahead of this level: "However, uncertainty surrounding tomorrow’s BoE MPC minutes could see GBP/USD downside limited. The recent low of 1.7037 looks likely to provide initial support."

Regarding the euro to pound sterling forecast, Karen Jones at Commerzbank says:

"EUR/GBP is seeing a small recovery from the base of its down channel at .7878 (2013-2014 down channel). We have several 13 counts on the intraday charts, together with Elliott wave counts to suggest this is the end of the downmove for now. We do not have any indication so far how far this could bounce, however rebounds are expected to find initial resistance at .7960 (June low) and the .7980 recent high. Only a close above the 4 month downtrend at .8009 would negate the current downside pressure (not favoured).

"Current Position: Long .7914 Recommended trade: Add .7900, stop .7885. Partially cover .7960 and exit the remainder at .7970."