Forecasts for British Pound, Euro and US Dollar Exchange Rates Week Ahead

The 12 week dollar rally has come to an end - but will the USD carry on with its winning ways next week and punish GBP and EUR further?

And what are analysts forecasting for the British pound - GBP was the darling of FX in weeks gone by but now finds itself in a protracted rut.

The euro is certainly the most negatively associated of the three currencies, but is it due an upside correction as the sell-off grows stale?

The foreign exchange markets will pick up the new week from the following rates:

The pound to euro exchange rate (GBP/EUR) @ 1.2737.
The euro to dollar exchange rate (EUR/USD) @ 1.2629.
The pound to dollar exchange rate (GBP/USD) @ 1.6078.

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The British Pound: Forecasting Volatility on Key Data Releases

The reason the GBP has come under pressure this October rests with waning expectations for an interest rate hike at the Bank of England in early 2014.

Indeed, indication suggest rate expectations have fallen back towards July 2014 - it could happen after the Fed raises their rates.

The coming week will however offer a chance for the GBP.

We get inflation figures on Tuesday; if inflation surprises to the upside then we may certainly get some GBP buying pressures.

However, if the opposite transpires then sterling could well be punished.

On Wednesday the all-important labour market figures are due. The BoE has made it clear that this is the number one determinant of interest rate rises.

Keep an eye on earnings - if average earnings figures beat expectations for growth of 0.7% then sterling exchange rates will certainly be bid higher.

Dollar: Forecasting Long-Term Strength

The dollar looks to end the final trading session of the week on a firm footing.

However, the USD is well on its way to ending its record 12 weeks in a row rally against a basket of currency peers.

"The dollar this week lost some tailwind from the Fed but it found others in safe haven flows amid worries that Europe might be headed for recession. Although the immediate road ahead appears fraught with heightened uncertainty for the buck, its longer term prospects remain bullish," says Joe Manimbo at Western Union.

U.S. bond markets will be closed Monday for Columbus Day but Wall Street will be open.

In focus next week will be retail sales on Wednesday, industrial output Thursday and consumer sentiment on Friday.

Euro: Fails to Break 1.28

It has been a volatile week for the euro, particularly against the dollar. However, the pound euro exchange rate has traded a pretty tight range.

A grim set of data from Germany this week on manufacturing and exports has fanned fears that the entire 18-member zone may be headed for another recession.

"Such big fundamental fears like these should keep a general weight on the euro as it heightens pressure on policymakers to support growth in any way, whether on the fiscal or monetary sides," says Manimbo.

Still, uncertainty remains as high as ever with markets getting their volatility back.

"Fortunately for businesses, like U.S. importers, they can opt for certainty over future costs in hedge products such as forward contracts. The euro faces heightened risk next week in data on the German investor, and euro zone numbers on industrial production and inflation," says Manimbo.