Pound / Dollar Exchange Rate at Risk of Going Sub-1.50

The pound sterling appears unable to resist the gravity of the advancing US dollar exchange rate complex.

Currency markets were set alight on the 6th of November when the pound to dollar conversion fell from an opening of 1.5210 to a close of 1.5052, representing one of the largest daily falls in months.

The USD rose in response to the eye-opening jobs report which has solidified expectations for a US interest rate rise in December. As long as US interest rate yields are seen rising we would expect the USD to maintain the journey on its path higher.

How high will the USD rise, and how far will the GBP/USD therefore fall?

"Last week’s sharp 2.47% decline (the largest this year) took sterling through the bottom of a trading range that had been in place since some five months, and where support had been evident at around 1.515," notes analyst Bill McNamara, technical analyst at Charles Stanley.

Looking at the US dollar exchange rate complex (US dollar index) we note that U.S. Dollar buying interest remains the predominant technical influence with several notable range-breaks being witnessed in recent days.

"Q2/Q3 gains for both EUR/USD and GBP/USD were considered corrective in any case (as was the recent decline in USD/JPY) and given this macro bullish USD back drop further gains are readable into the end of 2015," says a note on the dollar’s outlook from foreign exchange brokers AFEX.

Some evidence exists to suggest a broad based reversal in fortunes next year but this still leaves room for further sizeable Dollar appreciation beforehand say analysts.

Forecast for the Pound v Dollar

Projecting sterling’s chances against the dollar therefore looks as though the GBP is prone to the downside if we account for the massive upswing in USD buying interest, the momentum from which will be hard to resist through the remainder of 2015.

The prevailing technical environment suggests that a sideways-trending move, in place for much of 2015, has broken down.

"This suggests upside potential will remain relatively limited going forward and in the meantime further losses cannot be ruled out," say AFEX.

Furthermore, "enough compression exists to potentially project values back towards the previous notable lows around 1.4565 eventually with initial support at the psychological 1.5000 and then 1.4900 and 1.4725 areas."

Dwelling on the significance of the break-down in the 2015 range is Richard Perry at Hantec Markets who says the recent declines in GBP/USD appear to be decisive.

"If the bulls cannot quickly re-establish themselves then the move will simply be seen as a dead cat bounce and get sold into," says Perry.

The old breakdown support at $1.5105 now becomes the new resistance initially, with further resistance up to $1.5150 which was is the overhead support left from just prior to the Payrolls report.

"The hourly momentum indicators are already unwinding with this minor drift higher in the Asian session but unless the momentum builds quickly, I would see this as a chance to sell today. Below $1.5023 opens $1.4850," says Perry.

There are a couple of data points to watch out for this week in the UK but we don’t see them as being significant enough to provide a game-changer to what seems to be a growing trend.