British GBP/USD Exchange Rate Outlook: GBP/USD Suffers Fresh Declines as the Greenback Continues Period of Strengthening

It meanwhile appears markets have been a little too optimistic in expecting higher interest rates at the Bank of England; while they are certainly on the way the timing remains questionable.

At the time of writing the pound to dollar exchange rate (GBP/USD) is trading a further 0.08 pct lower on a daily basis at 1.6871. (Friday 1 August).

Please note that this quote is taken from the wholesale markets; your bank will affix a spread to the rate at their discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Find out more.

Outlook continues to favour the US dollar over the pound sterling

The pound dollar rate has this week crashed through the 1.700 level and then the 1.69 level - both were tipped to be psychological levels of support for the currency.

Lloyds Bank Research tell us the outlook suggests further declines in the pound dollar rate:

"The market had been overly optimistic towards the prospect of early rate hikes following hawkish comments from Governor Carney’s Mansion House speech. Rate expectations have pared back over the past few weeks, and while UK data has been decent, it has failed to fuel market optimism towards the first BoE rate hike. This prompted the squaring of some GBP longs positions and saw GBP/USD lower.

"The bias remains to the downside in GBP/USD unless we see some stronger than expected UK data or some weaker US data that would a move in 2y relative rate spreads in favour of GBP. Today’s UK data could provide some support for GBP. UK mortgage approvals are expected to pick up in June in line with BBA mortgage approval figures from last week. Mortgage lending has slowed in recent months owning to the introduction of the Mortgage Market Review in April.

"However, moves in GBP/USD will likely be limited ahead of key US data tomorrow."

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Kamil Amin, FX Analyst at Caxton FX reckons the near-term outlook will be driven by technical considerations:

"With no key economic releases out of either the US or the UK, it is possible that we will see the GBP/USD rate trade off technicals today and this could result in sterling strengthening marginally.

"It appears as though there is currently no desperate need for the BoE to increase rates, despite the fact that the recent monetary policy meeting minutes revealed that some policy makers see reduced risks to growth on the back of a rate increase. As a result the market will be expecting the BoE to set a time frame over the coming months as to when they expect to take some form of action. If this is the case, we could see sterling return back to levels we have been accustomed to for most of June, which is close to the current 5-year high."

The US dollar's outlook

The U.S. dollar hovered near a six-month high against a basket of its major rivals overnight as investors braced for a very busy economic calendar week that is likely to set the tone for major currency pairs over the weeks to come.

A two-day Federal Reserve monetary policy meeting, the first look at U.S. second quarter GDP, euro zone inflation and unemployment figures and the all-important U.S. employment report for July are on tap this week.  

"Despite the marked improvement in U.S. growth, the Fed is unlikely to change its statement this month given the lack of wage growth and still benign inflation backdrop. However, even a slight nod to recent U.S. economic strength by the Fed and/or another strong payrolls report on Friday could finally see U.S. Treasury yields and the dollar break meaningfully higher," says Omer Esiner at Commonwealth Foreign Exchange.