British Pound / US Dollar Exchange Rate Could Still Test 2015 Best
- Written by: Gary Howes
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It had been a great week for the pound to dollar exchange rate conversion with the pair storming higher by almost a percent on Wednesday alone and managing to hold the gains on Friday.
- US Retail Sales for May read at 1.2%, above expectations for 1.1%. The pound fell half a percent against USD but has ultimately recovered confirming a near-term positive bias.
- “Driven more from the USD side of the equation, we like selling GBPUSD on rebounds." - Morgan Stanley on the longer-term prospect.
The recent move higher in GBP-USD will be welcomed by those with pressing dollar payments, and recent trading action suggests to us that a return to the best exchange rate levels of 2015 could become a possibility.
What is encouraging for sterling bulls is how the pound / dollar managed to recover losses on Thursday, particularly following a strong economic data release out of the US.
Retail sales came in above expectations sending the dollar higher across the board. US retail sales for May increased by 1.2%, ahead of expectations for a reading of 1.1%, this is not a massive beat on expectations but does serve to confirm that economic momentum is picking up in the States.
As we can see, the GBP-USD has recovered and from a technical perspective looks poised to track higher:
Momentum is positive - GBPUSD trades above the 20, 50 and 100 day moving averages confirming buyers continue to outnumber sellers.
But those waiting for even better exchange rates should not take the strength for granted as we see the potential for a swing lower occuring anywhere above 1.56 - an area that should start offering resistance.
Indeed, professional traders have told us that they are looking to start placing bets on a return of US dollar strength and see the current USD weakness as a good entry opportunity to profit on an impending recovery in the Greenback.
The dollar's long term uptrend has not changed and in the short term the latest setback we have seen in the USD this week gives traders an opportunity to buy the dollar at lower levels. (i.e sell the GBP-USD at higher levels).
Professional trading advisory service BK Asset Management has been telling clients they are looking to sell the GBP-USD rate in the approach to the looming FOMC meeting which should be pro-USD.
“We expect the dollar to trade higher leading up to the Federal Reserve's June monetary policy announcement on the 17th and then extend its gains in the days that follow. Yellen has made it clear that she does not need to see a major increase in core prices as long as labor market slack is declining, making them confident that their inflation target will be reached,” says Kathy Lien.
Institutional analysts who have their eyes on the long-term forecast are also suggesting that any strength in the pound to dollar rate should be considered a good point to sell.
Morgan Stanley, in their latest currency note to clients say:
“Driven more from the USD side of the equation, we like selling GBPUSD on rebounds. The currency pair continues to be sensitive to data.
“In particular when Services PMI headline was weak, the underlying details showed signs of strength in the labour market – however GBPUSD fell on the day. The same is with the US side, where we watch for the hard data.”
Morgan Stanley are forecasting the GBP-USD to fall to 1.40 by the end of 2015 before recovering to 1.41 in 12 months from now.
Driving a pro-USD agenda is the prospect of higher US interest rates based on the stronger economic performance.
“After disappointing April figures, the feel-good summer has arrived for Fed chair Janet Yellen and she’ll feel that there is better yet to come. A period of low oil prices had initially hit the auto sector but given consumers a bit more in their pocket. Now , not only are oil prices rebounding but much of that saved-up cash is going straight back into the economy at the pump," says Dennis de Jong at UFX.
"Following all this good news across the board, Yellen may even think about a shopping spree of her own, with a Reserve rate increase first on her shopping list," says the UFX analyst.
