GBP/USD Exchange Rate at RISK of Heavy Fall Warns New Forecast

The British pound (GBP) is struggling to regain lost ground against the US dollar. Indeed, latest forecasts suggest the situation could get even worse.

GBP has lagged so far this week as G10 currencies recovered slightly against the USD.

"Sentiment towards GBP remains somewhat subdued, underpinned by the market’s relatively dovish rate expectations for the UK; the OIS curve suggests the first rate hike is priced in for May/June 2015," say Lloyds Bank Research in a currency note to clients.

"Sterling scaled back above $1.60 but sentiment still struggled following fresh evidence of U.K. economic momentum on the wane. U.K. industrial output failed to growth in August from July, serving as another cautionary sign for Britain’s economy which can buy the Bank of England more time to hold rates low," says Joe Manimbo at Western Union.

• At the time of writing the pound to dollar exchange rate (GBP/USD) is trading 0.21 pct lower @ 1.6063. (This could turn around if today's FOMC minutes do not go in favour of the USD).

(Please note that these are wholesale rates, your bank will affix a spread at discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering up to 5% more FX in some cases, find out more). 

This was magnified against the US dollar who received some unexpected strength from encouraging Non-Farm employment change, trade balance and unemployment figures – all performing far above expectations and signalling hopes that the US economy is on the right track.

At the time of writing the British pound to dollar exchange rate is seen trading 0.01 pct down on a day-to-day basis having reached 1.6081.

"The dollar’s historic rally continues to be fueled by the notion that America’s economy is outpacing its major rivals and that the Federal Reserve will lead other major central banks in monetary policy normalization. The Fed is set to end its QE program of emergency bond purchases this month and is widely expected to begin raising rates in the first half of next year," says Omer Esiner at Commonwealth Foreign Exchange.

Forecasts Warn of More Pain

A powerful note on the outlook for the GBP/USD from Camilla Sutton at Scotiabank has been released today:

"GBP is off its lows but barely, being one of the few currencies to reach a new low early in today’s session before stabilizing. The violence of Friday’s collapse, the breaking of the Scottish independence vote low of 1.6052, combined with today’s pattern, warns of strong downside momentum against GBP."

According to SEB Group the GBP/USD is headed lower on a technical basis:

"The break and close below the Sept low but more importantly back below the 2009 triangle ceiling line has generated yet another medium term sell signal (are longer term view is that 1.7192 marked the end to the upward correction since 2009) calling for the market to in due time be aiming at the lower boundary, currently running at 1.5050.

"Short term some additional selling is likely but also a mid-body rebound thereafter."

And analysts at Goldmans Sachs have little positive news for those watching the dollar forecasts:

"If a clean break is attained (which at this point looks likely), the next support will then be 1.5752-1.5718 which is 61.8% retrace from Jul. ’13 and where two interim highs from Jun./Aug.’13 are confluent.

"Given that the recent bounce into the Sep. 19th high held 38.2% from Jul. ’14 –a textbook corrective retrace– and looked like a possible bear flag/continuation, GBPUSD does really appear to be gearing up to resume its downtrend

"The big test will be to see whether GBPUSD will maintain its weekly break below the 200-wma which is 1.6013."

Euro Dollar Also Forecast Lower

Turning to the big currency pair of the EUR/USD, the outlook does not currently favour the euro:

"Resistance runs fairly thick from 1.2661 all the way up to 1.2796 where a series of previous lows and 61.8% of the entire ‘12/’14 rally are converged. The next level to focus on is 1.2504 which is 76.4% retrace of the entire Jul. ‘12/May ’14 rally. The target from the rising wedge is now not so far away at 1.2043 (the Jul. ‘12 low).

"Put simply, any bounce/squeeze from this point should be viewed as an opportunity to reestablish bearish exposure."