Pound Dollar Exchange Rate Forecast: GBP Correcting or Consolidating? Either Way the Outlook is Weaker
- Written by: Gary Howes
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The forecast is for further declines in the pound dollar exchange rate after fresh yearly highs were seen earlier this week.
The pound dollar exchange rate (GBP/USD) is trading 0.1 pct lower on a day-to-day basis having reached 1.6667.
This is a pullback from those highs seen around 1.6728 ahead of today's event risk at 09:30 which turned out to be negative to GBP.
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The GBP/USD dropped through the 1.6700 level in morning London trade today after UK labor data revealed a jump in the unemployment rate to 7.2%.
The market was anticipating a drop to the key 7.0% level from last months 7.1% reading.
The surprising jump in the unemployment rate overshadowed what was an otherwise upbeat report as both claimant count and the average earnings index beat expectations.
Forecast for the pound dollar exchange rate
The outlook for GBP/USD has deteriorated somewhat, as noted by analyst Boris Schlossberg at BK Asset Management:
"Cable which spiked to a fresh yearly high of 1.6825 at the start of the week may have set a near term top for now and could spend the rest of this week consolidating towards the 1.6500 figure as profit taking kicks in.
"The BoE is clearly displeased with any further appreciation in the unit as it fears that higher exchange rates could crimp the recovery in the export sector and therefore the communication from policymakers is likely to remain dovish for the time being."
Equally bearish on the pound dollar forecast are ICN Financial who have today advised that the outlook for the sterling exchange rate complex has turned bearish:
"The pair dropped yesterday and triggered the weekly recommendation stop-loss; we mentioned in our late session report yesterday and we have altered the position to bearish.
"The negative outlook is based on the GBPUSD returning below the upper Envelopes line with adjusted divergence to 1.30% to be compatible to the pair’s movement. The pair dropped after reaching the resistance areas of the ascending channel on graph.
"Trading below 1.6835 is now negative and might deepen the bearish correction. The current bearishness does not alter the overall upside move as AROON did not offer any reversal signals but only shows weakening signals while Linear Regression Indicators remain positive."
Ahead: All drivers are US related in nature
The UK domestic scene should slip into the back-ground for the remainder of the month, as such increased focus will now fall onthe US.
"In North America today, the morning docket has smattering of housing data which may once again be skewed by the bad weather patterns of the past month, but focus will quickly shift to the FOMC minutes due at 1900 GMT," says Schlossberg.
The minutes are likely to reaffirm that the FOMC will stay the course, but traders will be interested to see if policymakers express any concerns about the recent slowdown in US economic activity.
The dollar has come under heavy selling pressure over the past week as US eco data has consistently disappointed.
"If the FOMC minutes reveal the same type of concern amongst US policymakers, the buck could see further selling with EUR/USD targeting the key 1.3800 level as the day proceeds," says Schlossberg.
