US Dollar vs Pound Sterling: GBP/USD Exchange Rate Outlook Remains Positive

"We still favour GBP/USD to the upside. We expect potential GBP demand related to the Vodafone-Verizon deal and the continued softness in US data should see GBP/USD remain well supported." - Lloyds Bank Research on the outlook for the pound dollar rate.

Levels in the pound dollar exchange rate remain elevated despite a firmer dollar paring back some losses. US data still isn’t particularly impressing and this is going to keep the currency on the back foot.

The early sell off in sterling has fueled an aggressive rebound highlighting the dollar’s vulnerability.

"Only an hour ago trading at 1.66 was proving difficult, giving the dollar some breathing room. It seems like the dollar needs a lot more than a light calendar to drive investors back into the dollar," says Saha Nugent at Caxton FX.

We do however warn that there are those that view current levels in GBP/USD as being overvalued; Barclays are suggesting traders position for weakness in coming months as the rate finds true value once more.

A look at the US dollar exchange rate complex shows:

UK retail sales came in weaker than expected, however this mostly offset the sharp rise seen in December.

The series is typically quite volatile on a month on month basis and while the weak print prompted an initial GBP sell-off this was quickly reversed.

"This week will be relatively quiet data wise compared to last week. Q4 GDP revision will likely provide the highlight, though no change is expected. We still favour GBP/USD to the upside. We expect potential GBP demand related to the Vodafone-Verizon deal and the continued softness in US data should see GBP/USD remain well supported," says a note concerning the pound / US dollar exchange rate outlook from Lloyds Bank Research.

Outlook for Pound Dollar Rate: 1.7 ahead?

Analysts at Citigroup have updated clients on where they see the headline Cable pair heading:

"Citi analysts expect the U.K. economy to grow 3.3% in 2014 due to strong property market, consumption and investment.

"The BOE may hike rates in Q4 2014. Interest rate differential may underpin the GBP.

"However, there are signs of deterioration in the U.K. current account recently and Scottish independence referendum will be held in September, which may restrain the pound in the medium and long term.

"GBP/USD may test higher to 1.6876- 1.7042 (13.10-13.22), with support at 1.6526 (12.82)."

Meanwhile, Kathy Lien at BK Asset Management says the 1.66 support level in GBP/USD is key, "if M&A flows keep the currency pair above 1.66, a slow climb upwards is possible.  However if the support level gives way, we could see a steeper slide down to 1.64."