Pound Free-fall: GBP-USD & GBP-EUR Exchange Rate Forecasts Swing to Negative

Furthermore, as a result of the sudden drop lower technical forecasts for GBP have turned negative.

For reference, at the time of writing we see:

• The pound to euro exchange rate (GBP/EUR) is trading 0.18 pct lower at 1.2463.
• The British pound to dollar exchange rate (GBP/USD aka Cable) is 0.02 pct higher at 1.6691.

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Why Has the Pound Sterling Crumbled?

The mid-week trading session was always going to be important for sterling; the employment data from the ONS is key to Bank of England policy making while the Bank itself released its Quarterly Inflation Report which gives guidance on interest rate policy.

Markets had pushed sterling higher in anticipation of an end-2014/early 2015 interest rate hike.

The sterling dollar rate fell sharply lower breaking below the 1,6750 mark after BoE Governor Mark Carney noted that both wage and productivity gains were "disappointing," he pointed out that the disappointment will see policy makers take a cautious approach to raising rates on the basis of poor wage growth.

Forecasts for wage growth were lowered to 1.25% in 2014 from 2.5% previously forecast.

He gave the British pound another slap lower when he said that even if spare capacity were eliminated overnight the right level of bank rate would be the current rate.

This is overwhelmingly bearish and completely at odds with his Mansion House speech which suggested an interest rate rise could come as early as this winter.

"Mr. Carney's emphasis on wage growth clearly indicates that the BoE is not yet ready to consider rate hikes as it sees inflationary pressures non-existent and is far more concerned about sustaining growth going forward," says Boris Schlossberg at BK Asset Management.

GBP Forecasts Turn Bearish for Near-Term

The near-term outlook for the pound to euro and pound to dollar rates have turned negative following on from this week's hefty drop.

Break-outs like these tend to foreshadow a new trend; and in the case of GBP it is to the downside.

However, the below sterling euro chart shows the pair is actually reverting to its longer-term upward trend - we could quite easily see a fall back towards the 1.24 level in coming days.

We would not suggest the uptrend in GBP/EUR is over yet, but it is likely to be entering a sustained pause and weakness.

The breaking of the upward channel would invalidate the bullish scenario.

The pound dollar is meanwhile decidedly tired.

The uptrend has run out of steam - combine this with the view that the US dollar may be at the start of a long-term rally and we get nervous about GPB/USD's bullish prospects.

We are forecasting a weak pound sterling for the remainder of August.

Investors changing their view on sterling

Adding to the flurry of comment out in the wake of today's events is Charles Purdy, Smart Currency Exchange:

"When a central banker speaks, investors listen and as Mark Carney spoke this morning sterling went into free-fall losing nearly a cent against both the euro and the US dollar in the space of just a few minutes.

"While speaking he has made it clear that he still sees lots of slack in the UK economy and that the Bank of England will be taking a very cautious approach to increasing UK interest rates.

"This is forcing investors to change their view on sterling which caused the rapid fall in sterling."