GBP-USD Exchange Rate Breaks Ceiling and Forecasts See More Gains

Our selection of pound to dollar exchange rate forecasts in the middle of May aim to help those with currency payment needs arrive at the best possible decision on timing their transaction.

Now that the electoral dust has settled and we enter a new political cycle for the UK, what does the outlook hold for the pound to dollar exchange rate conversion? The removal of political uncertainty has allowed us to answer this question by increasing our focus on the big issues that matter for sterling – economic performance, the Bank of England and technical levels on the charts.

The pound sterling bottomed against the Greenback in mid-April 2015 when 1.46 was touched. This zone proved to offer a strong supply of buying interest as traders saw the pound as being oversold at these levels and buyers soon overwhelmed sellers driving the price higher.

The point also coincided with data from the US economy that indicated economic growth was slowing down which prompted a run of all-round US dollar weakness. The pound to dollar exchange rate was then allowed to rally higher to 1.5531, the same level at which the March rally ran into stubborn resistance and buyers grew shy.

It would appear that traders are now willing to carry sterling-dollar above this point. We explore whether the prospect of a break higher above here and to even better exchange rates remains alive or whether the lion’s share of the April/May rally has occurred.

To reference, at the time of publication the pound dollar exchange rate is trading at 1.5690 after the resistance zone at 1.5531 was broken following the release of strong UK Manufacturing and Industrial data. Once this significant resistance zone was cracked it appears to have encouraged further buying interest.

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Forecasts for the British pound v US Dollar

Our view as of 13th May:

We see the break of the level at 1.5530 as key, it invalidates the double-top that had some technical analysts start warning that the best is now over. The crack of the ceiling potentially opens the way for further gains and if 1.56 can now act as support we could see the December 2014 ranges become etablished.

Commerzbank Short-Term as of (13th May):

"GBP/USD has reached the 200 day ma 1.5618 and continued higher. Dips will find initial support at 1.5375/1.5287 (near term uptrend), with key support offered by the 1.5093 cloud. While above here, there is scope to the 1.5785 December peak and 1.5855/80, the October 2013 low and 50% retracement.

"Currently we are unable to rule out a move towards the 1.5897/1.5949 55 and 200 week moving averages. We note the 13 count on the 60 minute chart and it is possible that we will see a small retracement near term. A close below 1.5287 will be needed to alleviate immediate upside pressure and signal a return to the cloud support at 1.5093."

Charles Stanley's Longer-Term View:

“The volatility continues for sterling relative to the dollar although its most recent price action has seen it drop back to test support (in the form of the previous downtrend) and the fact that it has now bounced from this line strongly suggests that it has formed a short-term bottom relative to the dollar and that, as a result, there is scope for further gains in the near term. Some resistance is possible in the form of the January peak, at 1.55 or so, but if that is successfully negotiated the next target will be around 1.575.”

Blackwell Global on Why Breaking the 'Double Top' Was Key:

“Election volatility has added to the cable with a large double top pattern forming at the resistance at 1.5500. This could see some of the recent gains given up as the pair retraces. The Stochastic oscillator appears to support this as it produced a lower high while the price made a higher high which means bearish divergence.

“One point to note is that the 20 EMA has pulled up over the 100 SMA which could provide some bullish support from the longer term traders. Look for resistance to be found at 1.5500 (as above), 1.5587 and 1.5746. Support is found at 1.5334, 1.5260 and 1.5129. The support at 1.5129 has acted as a pivot point on several occasions so this will be an important level to watch out for.”

Questions Over Policy Central to the GBP Story

Moving the charts aside, we have a busy mid-month session to consider with the highlight being the Bank of England’s quarterly Inflation Report due on Wednesday.

Currency traders will get the chance to hear from the Bank of England’s Monetary Policy Committee as to when they may raise interest rates. Any indication that a 2015 hike is on the cards will be pro-GBP and we could well see sterling move higher across the board.

A soft tone to proceedings would by contrast undermine the UK currency. Wednesday also brings with it the latest figures concerning the UK’s employment situation.

Look out for evidence as to whether pay levels in the UK are growing at a solid clip.