US Dollar Outlook Update Following June FOMC

Analysts give us their views on what the future holds for the US dollar exchange rate complex (USD) in the wake of the June FOMC event.

"For Dollar sellers Sterling is starting to look a little overstretched so you should see lower levels again in the not too distant future."

The dollar is under pressure in the wake of the US Federal Reserve’s monetary policy briefing with losses being felt against the British pound in particular.

News that US interest rate rises will be less aggressive than previously predicted over 2015/2016 has allowed the GBP-USD to rally to year highs.

The question now becomes whether the USD will stay weak or recover and res-assert its cyclical uptrend.

We hear from a number of leading currency analysts as to where the Greenback could be headed next and what the setup behind the leading pairs of GBP-USD and EUR-USD look like.

Lucy Lillicrap, FX risk management solutions at AFEX gives her forecast for the pound dollar exchange rate:

"Although the sustainability of current advances is questionable in the long term the Pound has vaulted its previous high around 1.5815 and further gains now appear likely in the short term. Looking further ahead technical evidence suggests current strength will prove to be corrective but in the meantime dips have initial support around 1.5700 with stronger demand awaiting on approach to 1.5500.

“While above this latter level an extension to, if not beyond, 1.6000 is possible prior to an interim top forming. If you have not bought any Dollars recently now presents an excellent opportunity to tidy up any gaps in your cover and then you can target 1.60+ to buy again.

“For Dollar sellers Sterling is starting to look a little overstretched so you should see lower levels again in the not too distant future but be prepared to see 1.60 tested in the interim."

If you are looking to transact on the dollar remember that rates referenced here refer to the wholesale FX markets and will attract a spread charge from your bank. However, an independent provider will seek to get you closer to the market and in the process could deliver up to 5% more FX.

With regards to outlook for the US dollar index - the aggregation of the dollar’s performance against all currencies there could be further declines until the support line just above 93 is tested.

Bill McNamara at brokerage Charles Stanley in London says:

“US Dollar Index (94.3) did not react well to the Fed’s ‘lower for longer’ pronouncements, however, and ended the day with a loss of 0.73%. The chart is now suggesting that the index is likely to head back towards last month’s four-month low, at 93.13; if that level gives way (which is starting to look like a realistic possibility at this point) the next downside target will be at 92 or so.

“Also worth noting is the fact that US Treasuries rallied on the Fed comments and in the space of six sessions the yield on the 10-Year has gone from 2.486% to 2.268.”

Kathy Lien at BK Asset Management is taking recent weakness to load up on bets for further USD strength:

“The bottom line is that U.S. rates are rising this year and if the labor market continues to improve and inflation ticks higher we could even see two 25bp rate hikes.  

“In an environment where the RBA, RBNZ and ECB are either easing or talking about doing so, the dollar will remain attractive.  Therefore we have used the latest pullback as an opportunity to reload some of our long dollar positions because the long dollar trade is not dead.”

With regards to the euro dollar exchange rate's forecast, Ipek Ozkardeskaya, Market Analyst at London Capital Group, says the euro could now move towards the 1.20 level:

“The broad based sell-off in US dollar pushed euro up to 1.1420 in European open. Besides and despite the Greek deadlock, the US dollar appreciation against the euro at the beginning of the year seems to back fire.

“The EURUSD diverges from the parity as expectations shift toward a neutralisation within 1.10/1.20 range; with slight positive bias in the short run should the pair breaches the 1.1467/1.1550 supply zone successfully.”