GBP/USD Rate: Stuck on 1.56

The GBP/USD exchange rate is in dead-lock as we enter August with the 1.56 level being the pivot.

The US FOMC statement released on the 29th of July has proven to be the catalyst to a stronger US dollar with traders stocking up on a currency that promises to be a winner on long-term fundamental basis.

“The U.S. dollar held firm and hopped into positive territory on the week, with sentiment heartened by the Federal Reserve’s generally upbeat assessment of the world’s top economy. Although the Fed appears undecided on when it would raise interest rates for the first time in almost a decade, market confidence is running high it would happen before year-end,” says Joe Manimbo at Western Union.

At the time of writing we can see broad-based USD strength:

• The pound to dollar exchange rate (GBPUSD) is at 1.5662. Our cumulative high street rate checker shows banks offering in the region of 1.5185. Independent currency providers are offering closer to the market at 1.5435. Find out more.

• The euro to dollar exchange rate (EURUSD) is back above 1.10. High-street offers are noted at 1.0578 and independents are closer to the market at 1.0933.

"GBP/USD has now thrown us some curveball action on then day. We thought that cable was primed to go higher today and try 1.5676 again, but now faced with a breakdown no the day at 1.56. Not convinced it will be a lasting breakdown, nit there os rap, to 15555 before cable can try another bounce back move," says a comment from 4Cast on recent action.

Also reflecting on the failure of sterling / dollar is Karen Jones from Commerzbank in London:

"GBP/USD recently failed again at the 1.5674 recent high, we are somewhat surprised that this did not provoke more of sell off.

"However for now, this resistance together with a pivot line at 1.5734 keeps our overall negative bias intact. The intraday Elliott wave counts are more negative and a break below the 1.5529 uptrend enough to trigger losses to the 200 day ma at 1.5395."

We are forecasting the pound / dollar exchange rate to continue hanging around the 1.56 region for now. The GBP-USD has oscillated around here for much of July with dips down to 1.54 finding buying interest.

Breaking above 1.56 on the other hand simply looks too difficult.

In short, this exchange rate is in a rut.

What Will Matter for the US Dollar Going Forward?

The stronger pound swam against the stream and managed a gain against the otherwise firmer greenback.

"Sterling’s brighter bias appears to have legs since it’s central bank inspired. News of stronger U.K. growth this week added weight to central bank views that interest rates may rise sooner rather than later. Still, sterling isn’t out of the woods with U.K. inflation running low, at zero, which argues for low rate for longer," says Joe Manimbo who manages corporate FX risk at Western Union.

Compulsory reading for those looking at the longer-term prospects facing the US dollar should read this piece covering new research from Barclays.

It is believed that the superior return on investments that the US offers - these are investments across the spectrum - leave the USD looking vulnerable to strength.

Nearer-term markets will be watching data to confirm that the US Fed will indeed commence interest rate rises in September.

“Therefore, the next two non-farm payroll numbers before the September meeting will be very important; the first of which is out next Friday and the second on 4 September,” says RMB’s John Cairns in Johannesburg.

GDP Data Gives USD Another Leg Higher

Aiding the USD higher on the 30th was the release of the 2Q15 GDP print from the US which came in at 2.73%.

"Our forecast assumes that solid job gains in July and August will provide strong support for this pace to be maintained going into the second half of 2015. We expect it to prompt the Fed to initiate the first hike at the September 17, 2015 Federal Open Market Committee (FOMC) meeting raising the fed funds target range by 25 basis points to 0.25% to 0.50%,” says Paul Ferley, Assistant Chief Economist, RBC Economics.