Key Exchange Rate Forecasts: The GBP/EUR and US Dollar - Views, News and Outlook

"This marks the 11th-straight week of gains for the greenback, a trend that is unmatched in the dollar’s history since it was floated from the gold standard in the early 1970’s," points out Omer Esiner at Commonwealth Foreign Exchange.

• The pound to euro exchange rate conversion is at 1.2804, 0.04 pct lower.
• The euro to dollar exchange rate conversion is at 1.2679, 0.03 pct lower.
• The pound to dollar exchange rate conversion is at 1.6230, 0.12 pct lower.

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The British Pound: Looking For Traction

The pound stayed mixed as it struggled to enjoy similar buoyancy against the greenback that it has against the euro.

"The policy outlook between Britain and the euro zone continues to supply sterling with steady support and keep it near 26-month highs. Still, skepticism over the timing of an eventual U.K. rate hike has hindered the pound against the dollar. Driving sterling in the coming week will be U.K. PMI surveys on manufacturing (Wednesday) and influential serves industry on Friday," says Joe Manimbo, analsyst at Western Union.

US Dollar Could Present a Headache to US Policy Makers

It was confirmed today that the world’s biggest economy grew 4.6 percent annually during the second quarter which was up from the previous estimate of 4.2 percent and marked a healthy bounce back from the 2.1 percent contraction during Q1.
 
"The economy remains on track to grow at a faster pace during the final six months of the year compared to the first half, which keeps the Fed on track to tighten and the dollar in line for sustained appreciation," says Manimbo.

The strong rally in the USD could however now become a worry to US policy makers concerned over the potential impact on US economic performance posed by the rally.

"A rising dollar not only makes U.S. exports more expensive, but it undermines the value of overseas profits for multi-national companies. It also puts downward pressure on the value of imported goods," notes Esiner.

As such, a stronger currency acts as a de facto tightening of monetary policy that if sustained, could impact the timing of the Fed’s first rate hike next year.

"Already, some Fed officials have said they are monitoring the dollar’s value. An increase in Fed official comments about a strong dollar could begin to limit some of the currency’s near-term upside," says Esiner.

Euro in Mild Recovery

Out of the three major currencies we follow here it is the euro that is seen as being the most at risk of further declines.

However, we have seen some momentary strength at the present time - the euro recovered from a 22-month low against the dollar yesterday as investors took some profits on the single currency’s impressive selloff.

"While day-to-day volatility could lead to some near-term strength in the euro, its medium to longer-term outlook remains broadly negative given the clearly divergent rate outlook in the U.S. and euro zone. Overnight, weaker than expected German consumer confidence did little to bolster the appeal of the beleaguered euro," says Esiner.

Looking ahead, further policy announcements at the ECB remain the key concern.

"The risk of additional easing by the ECB should keep the euro biased broadly lower, especially in light of the contrasting outlook for U.S. monetary policy, which is seen becoming tighter next year," says Esiner.