Pound-to-Dollar Rate Forecast for the Week Ahead: More Gains

- GBP/USD remains in an established uptrend

- The 200-week at 1.4180 will probably cap gains

- Data from the US could point to inflation trends

© Nazli Sart, Adobe Stock

The Pound buys 1.4164 US Dollars at the time of writing, which represents a 0.12% increase from the week's opening level. Last week saw the exchange rate hit a monthly high at 1.4208, and in the process successfully reach our target at 1.4100. 

Our latest set of technical studies ahead of the holiday-shortened week suggest the exchange rate can continue to move higher.

On the weekly chart - which looks at longer-term trends - we can see the Pound rising in a channel, and given that its uptrend remains intact the overall forecast is for it to continue over coming weeks.

We don't see a major impediment until the exchange rate reaches the 200-week moving average (MA) and the February highs both at around 1.4180.

The combination of the 200-week MA and the February highs are expected to present an obstacle to further growth.

Moving averages are dynamic levels of support and resistance where increased buying and selling takes place which can lead to pull-backs or even reversals in the established trend.

Important highs and lows perform the same function; so the confluence of both at the same level makes the barrier doubly resistant.

On the four hour chart - which gives clues regarding short-term action - the pair has established a short-term uptrend, with higher highs and lows in a sequence of peaks and troughs higher and this is expected to extend in the near-term.

A break above the 1.4218 highs would confirm an extension up to the aforementioned target at 1.4280. 

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Data and Events to Watch for the Dollar

Hard data releases out of the US are likely to be in short supply in the week ahead, with the main events confined to the Q4 GDP second estimate on Wednesday at 13.30 GMT, and Personal Consumption Expenditure (PCE) which is the Federal Reserve's (Fed's) favoured metric for measuring inflation, out on the day after at the same time.

The Fed sets interest rates in the US and since interest rates are the main driver for currencies because they attract foreign capital inflows, PCE, could impact on the US Dollar, with an upside result boosting the Dollar and vis-versa for a downside result.

"The US PCE Price Index is gaining momentum combined with last week's Dollar weakness and the tight labour market, we see risks tilted towards a higher reading than the consensus estimate 0.2% mom reading," says Nordea bank's chief strategist Martin Enlund et al.

As far as Q4 GDP second reading goes, it's not often the second estimate shows much of a change from the flash and first estimate, but economists are still forecasting a slight upwards revision to 2.6% from 2.5% previously, on an annualized basis, which means compared to Q4 in 2017.

Concerns about a trade war erupting after the US imposed heavy tariffs on imports, especially those from China, could dampen the global growth outlook if they escalate, however, this is likely to lead to upside in the Dollar since one of its main headwinds is RoW - which is short for growth in the 'Rest of the World', which is seen eclipsing US growth and attracting investors away from the US by more lucrative opportunities elsewhere.

Data and Events to Watch for the Pound in the Week Ahead

Overall it is a relatively quiet week for the Pound on the calendar and the most likely source of volatility will probably be the ongoing Brexit debate.

The Pound strengthened last week after a transitional agreement was agreed by the EU in Brussels, which will now see the UK extend its stay by 21 months after the March 2019 deadline, on special terms, whilst a comprehensive trade deal is hammered out.

Brexit headlines are of course impossible to predict as they are generated by politicians and we will be monitoring the newswires for any potential points of interest.

From a purely hard data perspective, the main release is the third estimate of Q4 GDP on Thursday at 8.30 GMT, although the consensus sees little chance of a change from the second estimate of 0.4% growth quarter-on-quarter.

"The more significant interest for next week’s publication will come from the national accounts detail released at this time," says Investec of the GDP release. This will include revisions to data on household income and personal finances in general, which affect overall consumer spending, the biggest driver of growth for the economy.

Should growth be downgraded unexpectedly we would certainly expect a soggy end to the shortened week for the Pound.

Current account data for Q4 is also out on Thursday, March 29, at 09.30, and is forecast to show the deficit widening to -24.0bn from -22.8bn previously.

Traditionally the current account was always seen as a major influence on currency levels but now there appears to be little empirical evidence of a link, so we do not see much volatility arising from this release.

The CBI Distributive Trade Survey for March is out on Wednesday, Mach 28 at 10.00 GMT and will provide the latest data on the retail sector.

"Launched in 1983, this widely followed survey covers questions on sales, orders, stocks, general business situation, employment trends and internet sales," says the CBI website.

Other March data includes Gfk Consumer Confidence, which forecasts to remain at a -10 reading the same as February.

Investec, however, sees a chance of a lift to -8 in March because of rising wages, less job uncertainty, easing inflation, the agreement of a Brexit transition deal and "the uncharacteristically “Tiggerish” Chancellor at his inaugural Spring Statement.

Other data in the week ahead includes mortgage approvals on Monday at 8.30, Nationwide house prices on Thursday at 6.00 (watch for a negative result as this would make two negative months in a row and be bearish for Sterling); business investment on Thursday at 8.30, consumer credit at the same time and mortgage lending also at the same time.

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