Pound Sterling to Dollar: GBP/USD Exchange Rate Forecasted Lower as Markets Won't Bet Against the Trend

This week we have seen some significant moves from a technical stand-point - firstly the break lower through the 1.7 and then secondly through the 1.69 level will have hurt confidence in those betting on a rebound in the GBP/USD.

Forecasts now suggest further declines could now occur.

The British pound to dollar exchange rate (GBP/USD) is seen to be trading a further 0.06 pct lower on a daily basis having hit 1.6875 on the first day of the month. Manufacturing PMI data from the UK is due, a positive surprise is required to halt the declines.

Please note that the above quotes are taken from the wholesale markets; your bank will affix a spread to the rate at their discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Find out more.

Forecasting declines in the pound sterling to dollar rate

We note a leading broker downgraded its forecast for the GBP/USD rate on Wednesday, explaining that the BoE could no longer shock the market and as a result there should be more emphasis on the downside risks currently facing sterling.

Kamil Amin at CaxtonFX reckons this is the latest in a series of setbacks for the GBP:

"The GBP/USD rate edged down closer to the 1.69 mark after the first Q2 GDP estimate exceeded the level that the market was forecasting.

"The rebound was broadly based on stronger growth in consumer spending, residential and non-residential business investment and government spending. The rebound in growth in Q2 confirmed that the decline in Q1 reflected a number of temporary factors, including the effect of adverse winter weather at the start of the year rather than a deterioration in the nation's economic recovery.

"With the lack of support for sterling again today, we could see the GBP/USD rate move further in favour of the US dollar. With employment data out of the US expected to contribute significantly to the Federal Reserve's decision making, it is likely that further optimism will build if jobless claims figures surpass the level that is currently being anticipated.

"Overall, we expect the rate to continue on the current downward trajectory but remain close to the current support level of 1.69."

US dollar strengthens as data continues to provide support

Ultimately relative economic performance is what counts for markets, and at the moment the US is certainly on the front foot.

The FOMC overnight revealed little new information for markets to grab hold of, the assessment on economic outlook was somewhat more upbeat but they made no changes to guidance on policy.

The latest instalment of the ADP employment just missed market expectations coming in at 218k.

"However, it showed private sector employment growth was solid in July and supports market expectations for a sixth consecutive 200k+ payrolls number for tomorrow. Furthermore, upward revisions to Q1 GDP and stronger than expected rebound in Q2 GDP helped USD gains yesterday. US initial jobless claims and various confidence indicators this afternoon could attract some interest," say Lloyds Bank Research in a note to clients.

Meanwhile, Lloyds note that month-end portfolio flows are expected to be relatively neutral with the exception of against EUR, where flows are expected to be EUR/USD positive.

"Following yesterday’s data releases we expect optimism towards the USD to see it remain somewhat supported against the other G10 currencies ahead of tomorrow’s payroll numbers," say Lloyds.