British GBP/USD Forecast: GBP/USD Exchange Rate is at Fair Value Warn Lloyds

But, are the current levels justified? Is GBP/USD oversold or still overvalued and therefore due a correction? An analysis provided by a leading UK bank suggests neither.

For reference, ahead of the new week we see the British pound to dollar exchange rate (GBP/USD) is at 1.6698.

"The dollar is holding onto its gains against the 3 most actively traded currencies because even with recent data disappointments, the outlook for the U.S. is brighter than the outlook for the Eurozone, U.K. and Japan," points out Kathy Lien at BK Asset Management as we move through the final trading session of the week.

Please Note: All quotes here are taken from the wholesale markets. Your bank will affix a spread at their own discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more FX.

Is the Pound Going to Fall Further?

Ultimately foreign exchange market participants are only interested in one thing - and that is where the markets are headed next.

We have some interesting longer-term forecasts for readers to consider. Firstly, this piece published earlier in the year that suggested 2014 would be the year of the dollar rally.

The forecasts were written off initially, however a late summer rally in USD has us turning back to this piece.

More recently we have heard from TD Securities who confirm they are gearing up for a USD run longer-term.

But what about the coming days and the nearer-term?

Lloyds Bank Research tell us that they reckon the pound dollar rate is actually around about fair value.

A foreign exchange forecast to clients, released mid-August says:

"GBP remains under some pressure with the markets having pushed out the expectation of the first rate hike to April following the QIR.

"2 year forward points are back to their level before Carney’s Mansion House speech, and broadly justify current levels of GBP/USD.

"While we think that the market is misinterpreting the QIR, and suspect there is still a significant risk of a rate hike this year, and certainly a strong chance of a move by February, it will now take some evidence in this direction if the market is to change tack.

"The most obvious potential trigger is that the minutes of the last MPC meeting show a dissent in favour of a rate hike at the August meeting, and we see this as a strong possibility, maybe even a probability.

"But until then the bias for GBP may remain on the downside, with today’s GDP likely to be unrevised but next week’s CPI likely to dip after the rise last month."

Lloyds are forecasting an upside target of 0.8475 in EUR/GBP, which may have more immediate scope for further GBP weakness than GBP/USD given significant short EUR/GBP positioning.