GBP/USD Falls as the Dollar is Back In Vogue
The US Federal Reserve looks committed to raising interest rates sooner than later – a revelation that should keep the pound to dollar exchange rate under pressure.
“Even allowing for another rebound over coming sessions fresh rallies are considered unsustainable beyond the 1.5815 peak already seen.” - Trevor Charsley at AFEX.
The British pound rallied notably against its US rival since inter-year lows around 1.4566 were achieved in April. The subsequent move to a 2015 best exchange rate at 1.58 does however appear to have marked a high point for those looking to transfer sterling into dollars with the currency now back down at 1.5354.
It would seem though that the negative sentiment towards the USD that allowed the pound to dollar (GBP-USD) to rally towards the 1.58 region has now run its course. Markets are beginning to price in a return to out-performance in the US economy for the remainder of 2015, something that will aid the USD complex.
Indeed, this view has been echoed by arguably the most important person in global financial markets – US Federal Reserve Chair Janet Yellen. On Friday the 22nd Yellen told markets that interest rates are likely to rise this year if US economic growth pick up in line with Fed expectations.
The US currency rose across the board following the communication with EUR/USD falling through the 1.0900 figure while GBP/USD dipped below 1.5400 once more.
“It appears that after several week of counter trend rallies the buck is back, but investor sentiment could turn on a dime if US data proves to a be disappointment. The Fed's path towards normalization is totally contingent on a strong US recovery in the second half of this year characterized by a healthy pickup in consumer spending and consistent uptick in wage growth,” comments Boris Schlossberg at BK Asset Management.
UK GDP will be the focus of attentionon Thursday with markets expecting an improvement on previous figures. "With the USD back in vogue though, a poor data set may well see GBPUSD react more to the downside, with 1.5200/1.5180 support ahead of 1.5045/35," say Lloyds Bank.
Long-Term Forecasts Price in Higher USD, Lower Pound
The dollar has been rallying against global currencies since July 2014 – a time when US economic out-performance made itself felt in a material way. That trend higher did however stumble in 2015 when the economic data needed to fuel the rally tapered out on the back of a harsh US winter.
It is still too soon to call an out-right return to USD strength, however we are confident in saying that the worst may be over for the world’s largest currency. Indeed, the recent declines against both the pound sterling and euro appear to have finally occurred.
For the pound to dollar exchange rate, “values have been rejected beyond 1.5800 in the past few days and while some support should be met either side of 1.5350 (then again towards 1.5200) selling pressure should continue to increase going forwards,” says Trevor Charsley at currency brokers AFEX.
Indeed, Charsley says any strength seen in the British pound over coming days should be considered as decent points from which to chase the GBP-USD lower:
“Even allowing for another rebound over coming sessions fresh rallies are considered unsustainable beyond the 1.5815 peak already seen. Major resistance awaits around 1.6000 and re emergent Sterling strength is thus likely to prove relatively short-lived in any case. Looking further ahead sub 1.5000 levels remain readable and the prior notable 1.4565 low is also vulnerable going forwards with intervening consolidative activity thus effectively viewed as distribution.”
