Could GBP/USD Fall Back Towards 1.55?

The British pound to US dollar exchange rate (GBP/USD) is seen trading on the back-foot in the current pro-USD climate - but just how far will the currency pair fall?

Indeed, the majority of forecasts that have come to our attention suggest that further declines are likely with momentum lying firmly in the hands of USD bulls. Nevertheless, slumps in the dollar must be expected - as is the case against the euro at the start of the new week. We do however predict losses in USD against all the majors to be shallow at this stage.

At the time of writing we see the pound to dollar exchange rate (GBP/USD) is 0.03 pct higher at 1.6085.

Will support at 1.6 hold or will it give way to further declines through to the mid 1.550's?

(If you are holding out for a better rate DON'T HESITATE. Ensure your FX provider has a buy order for when your rate is hit and a stop-loss order incase the market moves further against you. Find out more here. Also note that an independent provider can deliver up to 5% more FX than your bank by coming in tighter on spreads and getting you closer to the wholesale markets, find out more here)

Reasons Why the Sterling Dollar is Forecasted Lower

According to analysts at Morgan Stanley downside exposure on the pound sterling is likely to remain contained courtesy of the outperformance of the UK economy.

In a weekly foreign exchange forecast note Morgan Stanley tell us:

"GBP should remain supported on the crosses as economic data is still strong and the BoE is likely to be among the first central banks to hike."

However, Morgan Stanley to caution that they would expect GBPUSD to remain sold, for a few reasons:

"First, recent economic data has weakened more than recent US data, which makes sense given the UK’s closer ties to EMU.

"Second, central bank commentary from the BoE recently has sounded mildly dovish, also supporting our GBPUSD downwards view."

Pound Dollar Exchange Rate to Drift Lower

In a note to their clients analysts at HSBC Holdings advise that they continue to look for GBP-USD to drift lower, with a 1.60 forecast for the end of 2014 and 1.55 for the end of next year.

"In part this reflects our wider bullishness on the USD, but it also takes account of our concerns regarding UK politics, the current account deficit and the recent run of softer than expected UK economic data," say HSBC.

Forecasting the US Dollar Higher

Meanwhile, Morgan Stanley have confirmed that they are firmly in the pro-USD camp:

"We have revised our USD projections higher as non-symmetrical global growth suggests that the USD could reach a new equilibrium. EM, Japan and Europe have slowed down, while US data have remained strong.

"A few months ago we saw the USD gain against the low yielders (CHF, EUR, SEK).

"USD strength then broadened out to the high yielders too (AUD and NZD).

"The USD has gained from expectations from the Fed, therefore we will be watching the minutes release this week."

How are Traders Betting on Currencies at the Present Time?

Commenting on the latest data from the Commitment of Traders Report, Scotiabank tell us: 

"USD bulls are gaining momentum with the net position increasing to $38bn.

"Traders have been long USD since June; however the position was not broad, held almost exclusively in EUR and JPY. This week there was a change with the net position shifting to long USD against CAD, AUD and MXN; leaving only GBP held as net long. This broadening of momentum warns that the USD rally is strong and leaving the near-term risk favouring USD upside.

"EUR positioning is bearish with the largest net short at $21.7bn. We note that sentiment has failed to deteriorate over the past month despite the continued decline in spot, warning that traders will need a catalyst to add to short positions.

"Meanwhile, GBP sentiment appears to be stabilizing with a net position that has shown little movement in recent weeks as investors have shifted their focus back to fundamentals."