Pound Dollar Forecast: Could GBP/USD Exchange Rate Weakness Merely be a Counter-Trend Move?

The US dollar meanwhile continues to enjoy a new-found strength on the global foreign exchange markets. However, it would appear that traders are willing to buy the pound against the dollar at these discounted rates. Is this the end of the decline, or a mere breather?

At the time of this article's last update the British pound to dollar exchange rate (GBP/USD) is quoted as being 0.07 pct higher on a day-to-day basis at 1.6590.

(Keep in mind that these are spot market rates to which a discretionary spread is added by your bank/provider. An independent FX provider will however guarantee to undercut your bank's offer, in some cases delivering up to 5% more FX. Please learn more.)

Sterling supported longer-term?

However, the relative supportive monetary policy should support the Sterling in the longer-term.

"As a result, we do not consider this weakness as a trend reversal but as a temporary countertrend move," say Swissquote Research.

However, note that they don't necessarily suggest the sterling dollar rate as the best vehicle for expressing any potential future GBP strength.

"A long position in GBP/JPY remains an attractive vehicle to be exposed to a renewed strength in Sterling," say Swissquote.

Beware of further declines in the pound to dollar exchange rate

At present we note a number of analysts continue to warn of further potential declines in the sterling dollar.

Credit Suisse tell us that should a key support level be broken we could witness further declines:

"GBP/USD’s early retest of the 200-day average at 1.6679 drew out renewed selling, and has seen a move to a new cycle low, reinforcing the large top.

"The immediate focus is on price support at the 50% retracement of the Nov-13/July-14 rally and price support at 1.6523/10. While we would expect this to hold at first, an eventual break will be expected for 1.6460, then our 1.6283/52 core target – the 38.2% retracement of the entire 2013/2014 uptrend and low for the year from February.

"Resistance moves to 1.6629 then 1.6654/57, with the 200- day average at 1.6679/80 ideally capping."

Credit Suisse maintain a short GBP/USD from 1.6650 targeting 1.6375.

Is this is just a dip?

Meanwhile, Manuel Oliveri at Credit Agricole reckons the declines witnessing in sterling present a decent level for buying the currency against both the euro and dollar:

"We stick to the view that the last few weeks’ downside is corrective rather than a change in trend.

"First of all, there is little room for central bank monetary policy expectations to fall further. According to several central bank members the unemployment rate itself is regarded as a more important indicator of slack than wage price developments.

"Further improving labour market conditions, as indicated by firm business activity, should therefore keep rate expectations intact.

"This is especially true as medium-term inflation expectations as shown by 5y forward breakeven rates remain well supported around 3%.

"As a result of the above-outlined conditions we expect the GBP to be a buy on dips, against both the EUR and the USD."