More Negativity: The British Pound Outlook Against Euro, Australian and US Dollar Pairs

We hear from a number of analysts concerning the sterling's potential direction.

At the time of writing we do see markets are selling sterling following the all-important Quarterly Inflation Report from the Bank of England:

• The British pound to euro exchange rate (GBP/EUR) is 0.71 pct lower at 1.2489.
• The British pound to dollar exchange rate (GBP/USD) is 0.72 pct lower at 1.6692.
• The British pound to Australian dollar (GBP/AUD) is 1.07 pct lower on a day-to-day basis having reached 1.7945.

NB: All quotes here are from the wholesale market; your bank will charge a spread at their own disrection. An independent FX provider will seek to come as close to the market rate as possible, they are able to deliver up to 5% more currency in some instances. Please find out more.

Sterling crumbles at Mid-Week Test

The pound tumbled to a 10-week low in its worst performance against the dollar in six months overnight.

"The pound slid across the board after the Bank of England’s Quarterly Inflation Report sounded a more dovish tone than many had expected. The BOE slashed its outlook for wage inflation in half for the rest of this year and said that ultimately, wage inflation would be the key driver of the timing of the bank’s first lending rate hike," says Omer Esiner at Commonwealth Foreign Exchange.

The inflation report came just an hour after the U.K’s employment report showed that the number of Britons claiming unemployment benefits fell by 33,600 in July, which was slightly better than expected, but average earnings fell in the three months leading up to June.

"The drop in wages and the BOE’s lowered forecast for wage inflation pushed the market’s timing of the first BOE rate hike from November-December to February 2015, sent short-term U.K. yields sliding and pushed the pound lower across the board. As the timing of the BOE’s first rate hike gets pushed out, the pound will remain vulnerable to further unwinding of long-GBP trades accumulated over the past year," says Esiner.

Pound to US dollar technical outlook

The dollar has been boosted by the continued flow of strong summer economic data out of the United States.

The strength of the USD appreciation has however slowed, this could allow for some near-term relief gains in the pound dollar rate.

Analyst Emmanuel Ng at OCBC Bank says he is bearish on the technical outlook:

"We prefer to stay heavy on the pair pending further developments while on the CFTC front, note also that net leveraged GBP longs were pared significantly in the latest week (with net leveraged positioning as a percentage of open interest continuing to be exhumed from elevated levels). At this juncture, we think the bias may remain southbound within a 1.6690-1.6900 range."

Pound to euro exchange rate outlook

Against the euro the pound remains supported by improving fundamentals for the UK and expectations that the Bank of England will increase interest rates later this year or early next year.

"Next focus is Wednesday's Bank of England Inflation Report, in which policymakers could upgrade growth prospects. Despite strong UK growth and employment gains, growing uncertainty about slack in the labour market and subdued inflation are likely to lead to the report reinforcing expectations that rate hikes will be data-driven," says Toby Mitchenall at Afex.

The technical outlook has not been adversely impacted by sterling's recent weakness.

"Further short-term profit-taking still looks possible and sterling could drop back to around 1.24 or so before this process is complete; looking further ahead, however, the outlook remains fairly bullish," says Bill McNamara at Charles Stanley.

Pound to Australian dollar outlook

Looking at the pound sterling to Australian dollar exchange rate we note the AUS dollar is threatening to advance and push the GBP-AUD lower with key medium-term support points being tested.

However, analyst Shaun Osborne at TD Securities notes that there, "is scant sign that the market really wants to press the issue and force a break lower, much as we suspected would be the case Two consecutive weekly “doji” candles reflect a high level of indecision in the market around a major support point."

Furthermore:

"Investors might soon conclude, in the sophisticated way that markets operate, that if it can’t go down it has to go up.

"We note very weak momentum readings here on the short, medium and longer-term studies; that is quite an unusual confluence—there is simply no directional bias evident from the oscillators on either the 6-hour, daily or weekly studies.

"We still think that a move below 1.80 should signal a little more weakness at least in the cross but the lack of directional intent here suggests the main, near-term risk is more sideways range trading around 1.81."