GBP/USD Rate's Rebound Forecast to Extend as Bears Look for Reasons to Sell the USD

The Pound to Dollar exchange rate had a week of two halves last week as initial weakness on Brexit trepidation gave way eventually to hope and glory.

The Dollar helped GBP higher by selling off on continued disappointment that Trump’s reflationary agenda may just be a pipe-dream, whilst data on Friday, showing a slowdown in income, spending, and inflationary growth put the boot in.

In the week ahead, the Pound could consolidate its lead if Purchasing Manager Surveys (PMI’s) beat expectations and the Dollar remains vulnerable to downside as bears look for chinks in the data as an excuse to sell.

The BOE’s out of character hawkishness could be a sign they know something we don’t about March, which is that it was a better month than previously expected.

The recent hawkish dissent in the Bank of England leads many to believe that the economy continued to improve last month.

For the Dollar the key releases in the week ahead is ISM Manufacturing at 15.00 GMT on Monday and Non-Farm Payrolls at 13.30 on Friday. 

The data must must be in tip-top order or the Dollar could witness more downside.

Also watch the release of the FOMC meeting minutes at 19.00 on Wednesday

“If the minutes confirm that the Fed is in no rush to raise interest rates again, the Dollar could retreat. But if they contain a general tone of optimism we could see 113 in USD/JPY. With that in mind, NFP is the most important piece of data to watch because economists are looking for slower job growth. If they are right, it could be the nail in the coffin for the Dollar, leading to lower trading in the next few weeks,” says Kathy Lien at BK Asset Management in New York.

Technical Analysis and Forecasts for GBP/USD

This is very much a sideways trending market, both on daily and weekly charts.

The pair may even be describing an evolving triangle pattern, the upper border of which is fast being approached at the 1.2635 level. This is expected to slow the ascent and lead to a consolidation or pullback.

Not far above the upper border is the 200-day moving average (MA) which is a further impediment to bullish progress.

The exchange rate will need exceptionally strong drivers to force it above these robust defensive lines and a continuation higher up to their level followed by a rotation and move back down within the triangle may be a more likely outcome.

Data to Watch

The main data releases in the week ahead for Sterling will be UK Purchasing Manager surveys (PMIs) for March, which are important forward-looking gauges of sentiment in major sectors of the economy.

Manufacturing PMI is out on Monday, April 3 at 9.30 GMT and is expected to remain unchanged at 54.6.

Construction PMI is out on Tuesday at the same time and is forecast to remain at 52.5.

Finally, Services PMI is released on Wednesday at the same time and is expected to rise two basis points to 53.5 from 53.3 previously.

Expectations are not particularly strong according to Capital Economics -  a view which contrasts with Kathy Lien’s more bullish view based on BOE hawkishness.

“This week’s PMI surveys for March should provide further evidence that the economy lost some momentum in the first quarter, and that manufacturing output growth probably outpaced services again. Friday’s first official hard data for February should support this view,” said Capital Economics’ Paul Hollingsworth in a note seen by Pound Sterling Live.