Pound dollar exchange rate forecast: GBP/USD outlook deteriorates as Sterling enters deep downward correction
- Written by: Gary Howes
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The Pound dollar exchange rate forecast has deteriorated over the course of the past few hours as analysts start to price in a deep correction for GBP in coming days.
We are now forecasting a decline in the pound US dollar exchange rate towards 1.63.
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Pound dollar exchange rate forecast deteriorates in near-term
The near term outlook for the pound to US dollar exchange rate took a hit this morning with the release of UK PMI data that missed the mark.
The sell-off is quite extreme and suggests markets were itching to sell a currency that has had seen a strong performance over recent months.
The question now is how deep the decline will extend.
A note on the matter issued by Matt Weller at GFT says:
"Unlike its mainland cousin, the GBP/USD has seen a bit of volatility to start the week. Rates have fallen sharply on a weaker-than-expected Manufacturing PMI report, and the pair is now trading down in the mid-1.6300s.
"For today, the next zone of support to watch will be from the YTD low and round handle around 1.6300-10; a bounce is possible off that level later today, so intraday traders should keep a close eye on the near-term price action moving through the North American session."
A forecast on GBP/USD issued by ICN Financial says:
"The pair dropped last week stabilising below Linear Regression Indicators and below 161.8% correction 1.6515, as it also broke the ascending channel.
"Therefore, trading below 1.6515 levels will be negative and will push the pair further to the downside, while the previous negative divergence on RSI 14 is still affecting the pair. Of note, Stochastic is showing oversold signals but stabilising below 1.6515 levels will force us to ignore these signals."
A forecast from Craig Erlam at notes that today's decline doesn't necessarily mean the rally in GBP/USD is over, but the ascent will now be markedly slower:
"Sterling is struggling again this morning, after closing below the ascending trend line, which dates back to 2 August, on Friday. The pair also broke below the 61.8 fib level which suggests the retracement in the pair is going to be bigger than initially thought. That said, the longer term outlook for the pair is still bullish, this just highlights the fact that it will probably be a slow grind higher, rather than the aggressive rally that we saw last year.
"The pair should now find support around 1.6356, the 38.2% retracement of the move from 12 November lows to 24 January highs. Below here, further support should be found around 1.63, followed by 1.6260.
"The latter is a major level of support for the pair, having previously acted as a key level support and resistance. Another important level of support is 1.6190, the descending trend line which dates back to 28 April 2011, which has been an important level of support and resistance in recent months."
