British Pound / Dollar Supported @ 1.60 - But Test of Key Support at 1.5877 Could Be Next

A sudden collapse in the British pound's value against the US dollar towards the end of October has prompted forecasters to warn of further declines.

We hear from one analyst who reckons sterling could be en route to break through the all-important support level located at 1.60.

As the following rates show, the turn-about in fortunes for sterling has been dramatic but we enter the new month with the key support level holding true.

Pound and Dollar Rate Today (Markets Closed):

• The pound to dollar exchange rate (GBP/USD) is quoted at 1.5999. This is a fall from this week's high at 1.6182.
• The euro to dollar exchange rate (EUR/USD) is trading at 1.2526.

The above quotes are taken from the global FX spot market. It must be noted that your bank will widen the spread on the above numbers when passing on their retail rate to customers. An independent FX provider will however guarantee to undercut the bank's offer thus delivering you more forex. Please see more on this here.

Pound Falls Below 1.60, Predicted to Lose Further Ground

The recent price action in the sterling dollar exchange rate has negatively impacted the outlook for the pair.

When we see sudden moves like the one shown in GBP/USD below, what we find is that it tends to turn a trend.

Above: GBP plummets against the dollar in the wake of the US Fed's briefing to markets on the 29th of October.

So while the pound dollar rate has been enjoying a strong mid-month revival, the trend may now be unravelling as buyers are stopped out of their pro-GBP positions as their stop-loss positions are closed out.

Confirming this sentiment is Luc Luyet, analyst at Swissquote Research who points out that a decline below 1.60 may now be in the pipeline for the GBP:  

"GBP/USD has successfully tested the resistance at 1.6184 and has broken the support at 1.5995. A decline towards the key support at 1.5877 is likely.

"Hourly resistances can be found at 1.6018 and 1.6072.

"In the longer term, given the significant deterioration of the technical structure since July, the strong resistance area between 1.6525 and 1.6644 is expected to cap any upside in the coming months. Monitor the current consolidation phase near the strong support at 1.5855."

Beware, More USD Gains Ahead Warn BTMU

The US dollar powered ahead in spectacular fashion on the 29th as markets got the hint that the US Federal Reserve will start to raise interest rates next year.

According to analysts at Bank of Tokyo-Mitsubishi (BTMU) this scenario opens the door to further USD gains.

In a note to clients, BTMU forecast:

"Overall the FOMC statement appears consistent with the view that the Fed will begin to raise rates from the middle of next year.

"The US dollar should now continue to trade on a stronger footing in the near-term. The release next week of a strong non-farm payrolls report for October could provide the trigger for further US dollar gains, BTMU argues.

"We do not expect the US dollar to derive additional upward momentum from the release today of the US GDP report for Q3. The report is expected to reveal that growth slowed in Q3, although the US economy still appears to be holding up relatively well compared to slowing growth overseas."

Before calling an all-out bear-scenario on the pound to dollar exchange rate it is worth noting just how firm support at 1.60 has been in the past.

It will take some doing to push the currency pair below this level.

We look towards the key data events due in November - if the PMI readings at the start of the month are sufficiently strong it could result in some GBP buying, thereby saving the day for those looking to make currency purchases with their GBP.