GBP/USD Rate Falls - But Can the USD Rally Last Any Longer?

The sterling dollar exchange rate (GBP/USD) enjoyed gains in the mid-week sessions as traders looked to call time on the impressive USD rally of 2014.

Many had thought this the beginning of a near-term GBP recovery, however jobs data came to the rescue of the USD (see below) on Thursday and reignited buying interest. However, there is a feeling the dollar buying interest may be short lived as the over-arching issue of the US Federal Reserve's approach to interest rates remains bearish.

"The Fed's FOMC Minutes mid-week were perhaps on the dovish side of expectations. The Fed showed some concern that a further appreciation of the USD posed downside risks to exports and US growth, and could slow the gradual rise in inflation toward the 2% target. This subsequently prompted broad USD declines," say Lloyds Bank research in a note to clients.

At the weekend the pound to dollar exchange rate (GBP/USD) is trading 0.00 pct lower on a day-to-day basis. The conversion rate sees 1 GBP = 1.6078 USD.

The euro to dollar exchange rate (EUR/USD) is meanwhile 0.14 pct lower. The conversion rate sees 1 EUR = 1.2624 EUR.

Beware, The above are spot market quotes, your bank will affix a discretionary spread to the figures. Note that an independent FX provider is able to provide up to 5% more currency in some cases by getting closer to the market, learn more.

Regarding the outlook, Lloyds warn that near-term US dollar weakness may remain a feature of currency markets.

However Lloyds caution dollar buyers that:

"We would not expect a significant reversal of the recent USD uptrend; US data remains firm and the recovery is still progressing, so we would not expect the USD weakness to extend."

As such we would suggest those with an interest in the dollar look to approach the market by ensuring their FX provider has the correct buy orders for when their ideal rate is reached.

Likewise you are advised to ensure the correct stop-loss is put in place to ensure that if the market were to move in the wrong direction you are not left out of pocket.

Jobs Data Gives Fresh Boost to the USD

We fear that our warning that the pound's rally against the dollar may be short-lived will become redundant even before this article is actually published!

At the time of writing we are witnessing the dollar pound rate decline once more.

This time the decline comes on the back of pro-USD news just out of the US economy.

"The dollar pared a few losses after the job market received more reassuring news. Weekly jobless claims fared better than expected, coming in at 287,000 compared to forecasts of 294,000. Moreover, the more reliable 4-week average fell to 8-year lows inside of 290,000," notes Joe Manimbo at Western Union.

Nevertheless, one hint of positivity for those betting on further GBP/USD climbs is given by Manimbo:

"The dollar though could start to its returns diminish a bit from positive data as the Fed now seems less inclined to hike as the dollar appreciates.

"The dollar’s robust gains in recent months have been tantamount to a rate hike as its strength can put a brake on growth by slowing both exports and inflation.

"The trade-weighted buck outperformed by the most in 6 years in Q3, gaining nearly 8%. So the dollar, along with jobs and inflation data, holds the key to a Fed rate hike. The higher the dollar flies, the longer the wait could be for a rate increase."