GBP to USD Weekly Outlook: Target 1.46 Ahead say U.O.B
The pound to dollar exchange rate is forecast to maintain its negative tone over the near- and mid-term timeframes.
The GBP/USD conversion has been trending lower since early November with the psychologically significant 1.50 area unable to halt declines. But, the pace of decline could be about to slow.
“With speculation that much of the downside pressure has potentially been related to an underlying flow, there seems limited scope for further depreciation in the short term,” say Lloyds Bank in a briefing to clients.
Despite specualation that the British pound is now potentially oversold, technical studies suggest further downside is possible.
“The sharp drop late last week does not bode well for GBP in the coming days. For now, the current weakness appears incomplete and is expected to extend lower to 1.4660/65,” says Quek Ser Leang at United Overseas Bank in Singapore.
At the start of the new week, and year, the pound to dollar exchange rate is seen trading at 1.4799 on the interbank market.
High-street banks are seen offering rates of 1.43-1.44 for international payments while independent providers are seen offering up to 5% more FX via rates quoted at 1.46-1.4650 at the present time.
Expect any gains in the British pound to be limited warns Leang:
“Any rebound is expected to encounter stiff resistance near 1.4760 and last Thursday peak of 1.4840 is not expected to come under threat any time soon.”
The Pound / Dollar Exchange Rate in January
While the short-term picture does not apparently favour the British pound, it must be pointed out that the mid-term view is not supportive to sterling-bulls either.
Leang says he is targeting a move to 1.4600 in the 1-3 week timeframe as the current bearish phase in GBP appears incomplete and is expected to extend lower to 1.4600 in the coming days.
“Downward momentum is still strong and any rebound is expected to encounter stiff resistance near 1.4760 but only a break above 1.4840 would indicate that the bearish phase has ended,” says Leang.
Fundamentals: Manufacturing and Jobs Report Dominates the Outlook
Data will be key for the pound and dollar this week with the UK currency facing three key PMI reports.
In the United States similar survey's are on tap and could impact USD direction, starting with manufacturing numbers.
The ISM index in the US declined further in December, it fell to 48.2, the lowest since June 2009.
"It paints a worrying picture of the US manufacturing landscape, one that exacerbated the already intense (China-inspired) fears," says Connor Campbell at Spreadex.
The highlight of this week will however undoubtedly be the labour market report on Friday and the outlook is robust.
Overall, the US figures should underscore expectations of a gradual rate hike path which will keep the US dollar in demand.
“The trend in the US jobs data has been so consistent - just over 200k jobs per month, steadily falling unemployment rate and steady wage growth - that I expect it to continue to now,” says Kit Juckes at Societe Generale.
And therein lies the first pillar of a strong dollar view, widely held by leading analysts.
“I can't see a way round the tightening US labour market and steady growth delivering more monetary divergence, enough to keep the dollar strongish,” says Juckes.
