GBP/USD Predicted to Sink to 1.45 by Year End

GBP/USD went on "a wild roller-coaster ride today first plunging to just above the 1.5200 level only to rebound quickly and rise through the key 1.5400 mark in reaction to Governor Mark Carney, first press conference in which he outlined the BOE forward guidance," says Boris Schlossberg at BK Asset Management.

Our forecasts on the British pound do not change say Scotiabank

The team at Pound Sterling Live have waded through the outpouring of commentary following the Bank of England Inflation Report looking for any changes to the long term forecasts for the British pound.

Camilla Sutton, Chief FX Strategist at Scotiabank, says she is still predicting the British Pound to end up significantly weaker by the end of this year.

Sutton says:

"Interest rates in the UK are on hold far longer than the market is currently pricing in and far longer than our expectations for higher interest rates in the US. In addition, the BoE has opened the door to further QE.

"As we move closer to a period where the US will enter a hiking cycle, one of the important benefits of forward guidance in the UK will be providing the BoE a tool to highlight how its policy will deviate from the Fed. Together, we expect that from a relative monetary policy perspective GBP is likely to weaken against the USD. We have made no change to our year‐end target of 1.45."

Short term outlook favours an extension of the rally

While Scotiabank's long-term forecast prediction for the British pound against the US dollar favours the latter, the same cannot be said for the shorter term forecasts.

Recent price action shows that the momentum currently favours the British Pound, and further gains are thus likely.

Matt Weller at GFT says:

"The GBP/USD went gangbusters in today’s earl y European trade as new Bank of England Governor Mark Carney chose to tie interest rates to unemployment in the U.K.

"The pair initially dropped over 100 pips (hitting the profit target on our GBP/USD sell trade from yesterday for a 62+ pip gain) before reversing back to the topside and rallying an incredible 250 pips as of writing. At this point, we are waiting to see where all the pieces fall, though a sustained break above resistance at 1.5458 (the Monthly R1 Pivot) would open the door for further gains toward 1.5500 later today."

Boris Schlossberg at BK Asset Management says he believes the rally could however soon stall:

"Today's relief rally, strong as it is, may find resistance above the 1.5500 level unless UK data continues to surprise to the upside. In an environment when all G-10 central banks are highly sensitive to appreciation in the currencies, today presser by Mr. Carney may have backfired and if cable continues to climb higher threatening the recovery."