GBP Exchange Rate Forecasts: Improvements Against the EUR and USD Should be Prepared For

By Gary Howes

The Wednesday morning exchange rate forecast notes the pound to euro exchange rate is likely to remain in a stalemate while there is little unity on the outlook for Cable. However, as Thursday's coverage shows, the UK pound has enjoyed a mild renaissance against the two. Watch our daily forecast section for the latest update.

The British pound (GBP) has found support over the past 24 hours thanks to Wednesday's inflation numbers.

Wednesday has seen further support come from the Bank of England's Martin Wheele.

However, we ask whether today's exchange rate action is enough to alter the deteriorating near-term forecasts for sterling?

We ask a number of specialists as to where they see the major pound pairs heading.

(Note, our FX quotes are to be assumed as mid-market rates. Your bank will deliver a retail rate skewed by the discretionary spread charged. An independent FX provider will however guarantee to get you as close to the market rate as possible. Please find out more.)

Sterling dollar forecast

Emmanuel Ng at OCBC Bank says:

"GBP-USD may remain bordered by the 55-day MA (1.6550) and 1.6475 on the downside, with investors still trying to determine if the data flow should continue to engender further GBP resilience.

"If the 55-day MA is re-taken, this may work to shake off some of the pair's recent malaise ahead of the UK GDP numbers on Friday."

Sean Lee at FXWW is ready to take a punt ahead of any recovery in GBP-USD:

"I definitely favour buying dips in cable. I’d suggest 1.6505 as the initial support level with obvious levels below that at 1.6470. My topside target is still 1.6650."

Sterling euro forecast

Commenting on the pound to euro exchange rate is Sasha Nugent at Caxton FX:

"The pound has already rallied this morning on the back of the sale of government shares in Lloyds to overseas investors. With German data failing to spark much support for the single currency, we feel there is some upside risk today.

"Resistance at 1.20 will aim to keep sterling strength at bay and we doubt the pound has enough momentum to break through this barrier. As a result, sideways trading is likely today."

Turning the equation around to EUR-GBP, Piet Lammens at KBC Markets also sees a stalemate:

"EUR/GBP is hovering in a tight range between 0.8320 and 0.84 and the pair is now again in the middle of that range with no trigger available for a break either way. Later this week, the UK retail sales (tomorrow) and consumer confidence (Friday) are released. Will they unlock the current stalemate? Not evident."

Euro dollar forecast

Yesterday EUR/USD drifted temporary below the 1.385 barrier as several ECB members kept the door open for more easing.

However, the decline was again reversed later in the session. The performance of the dollar remains rather poor.

Commerzbank's Karen Jones says:

"EUR/USD has again held the 1.3749 low of last week and we remain unable to rule out further stabs higher,, but we look for these to remain limited. Last week we saw the market reverse from major resistance at 1.3958/1.40 (50% retrace of the move down from 2008) and sever its short term uptrend. We remain of the view that the market has recently topped and is likely to come under increasing downside pressure.

"Current position: Short 1.3916. Recommended trade: Stop 1.3970. Target at 1.3500."  

Piet Lammens at KBC Markets says:

"For now the mid 1.3750 area proves to be a tough support short‐term. The jury is still out regarding a more broad‐based dollar rebound.For that, stronger US eco data are needed. Even so, the 1.40 barrier is now better protected."