Pound Dollar Rate Forecast 2015: 1.50 is Ultimate Target for GBP/USD

The pound to dollar exchange rate (GBP/USD) is forecast to fall back to 1.5000 in early 2015 according to a recent analysis.

The call comes after a solid early February which saw sterling stage a comeback off the 1.50 region back into the 1.53 area as oversold conditions prompted discount seekers to buy cheap GBP and cut back on exposure to the Greenback. 

At best these oversold conditions may offer some temporary relief for those looking to buy USD with their GBP as the longer-term picture remains overwhelmingly negative.

• At the current time the live pound to dollar exchange rate (GBP/USD) is at  1.2569.
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Projections Show More Losses Ahead for Sterling

While there are those willing to take a punt on a GBP/USD recovery in the short-term we note there is even more reason to believe further declines are possible.

Lucy Lillicrap at brokerage Afex says a hit of the 1.5000 support point cannot be ruled out:

"The market here accelerated through projected channel support at 1.5700 making a sustainable and direct GBP recovery much more difficult in the process. In order to reduce immediate downside risk Sterling values will now need to recover back through at least 1.5950, if not the distant 1.6200 level as well.

"Otherwise further declines cannot be ruled out over coming days with 1.5500 support likely to prove only a temporary barrier to continued selling pressure. Oversold intermediate readings are potentially of some concern but an exhaustive bottom may well not form until nearer the psychological 1.5000 level. Fresh recovery attempts face local selling pressure gains look limited beyond at present."

Above image courtesy of Afex, Bloomberg.

Beware The Dollar Correction Lower

While technical charts, as show above, confirm the course of least resistance for the sterling-dollar is lower, we must be aware that the potential for dollar weakness continues to grow in the short term.

Ian Stannard at Morgan Stanley says his bank is preparing for a period of respite for those looking to buy the dollar with euro and sterling:

“We expect a USD correction over coming weeks.

“US data has been somewhat soft recently, while there are signs of reflation and green shoots in Europe.

“This differential could drive investors to take profit on some of their long USD holdings. Given stretched positioning, this should drive a tactical USD selloff.

“However, we believe USD weakness will be short-lived, and followed by a resumption of the bull cycle.”

Though Morgan Stanley see room for some correction over coming weeks they think we are only halfway through the USD bull cycle.

Growth and monetary policy differentials are likely to work in favour of the USD, and the fundamental drivers of USD strength have not changed.