US dollar exchange rates: Outlook for the USD remains positive, pound sterling supported by 1.63 level

By Gary Howes

US dollar exchange rates (USD) are currently being dictated to by strong US economic releases and the USD outlook is tipped to remain firm today with strong data out of the US  encouraging the belief that last Friday’s payrolls announcement was an aberration.

Today's US Dollar Exchange Rates

• The pound sterling to US dollar exchange rate (GBP/USD) is 0.23 pct lower than seen at yesterday's close having reached 1.6335.
• The euro dollar exchange rate (EUR/USD) is 0.1 pct higher at 1.3619.
• The Australian to US dollar exchange rate (AUD/USD) is 1.46 pct lower at 0.8786.
• The New Zealand to US dollar exchange rate (NZD/USD) is 0.33 pct lower at 0.8312.

Note: Our USD quotes are taken from the wholesale spot markets. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.

What is driving the US dollar exchange rate at present?

In 2014 there will be a simple rule to currency valuations - behind a strong currency there lies strong data. (Unless you are the euro of course!).

Driving the US dollar over the course of the past 24 hours was the release of the Empire manufacturing PMI – a separate reading for the New York area – which pushed to the highest level since May 2012 with new orders and employment components both smashing estimates.

"This seems to be in keeping with the overall level of ISM growth seen at the beginning of the month. Wholesale prices, as measured by PPI, also rose for the first time in 3 months, although as with most inflation measures in the developed world, remains well below what could be considered normal levels," says a morning foreign exchange note from WorldFirst.

The Fed’s Beige Book, a publication of surveys from the regional Feds, was also encouraging for USD bulls, with anecdotal evidence suggesting that the jobs market may be stronger than the data suggests.

Outlook for US dollar exchange rates today

The daily agenda includes US CPI and Initial Jobless Claims, both of which are more likely than not to offer further support to the USD.

"The focus remains on inflation in the Eurozone and US this session with CPI measures from both due at 10.00 and 13.30 GMT respectively. The most likely scenario from these releases in our eyes is that Eurozone CPI remains at 0.8% – there hasn’t been a large negative slip this month – while US CPI trickles higher in keeping with the slight uptick in PPI that we saw yesterday. We would like to see core prices accelerate this month as well but beggers can’t be choosers," say WorldFirst.

Headline US CPI is expected to have risen to 1.5% y/y.

USD/JPY: "The US dollar (USD) has managed to recover its sharp decline against the Japanese yen (JPY) owed to disappointing employment figures last Friday. The pair is again trading above 104.70 as US unemployment claims are expected at 327K this afternoon." - Orestis Aristides at EasyForex.

Pound Sterling to US dollar exchange rate outlook (GBP/USD): "Cable fell yesterday with Middle East sellers being heard behind the drop; a rise in the US CPI is likely to further weigh on GBP in the short term but a break of 1.63 is needed for a bearish signal." - Italy's UniCredit Bank.

"GBP may continue to move higher due to the strong economic outlook and high housing prices in U.K. Technical Analysis: GBP/USD may consolidate before rising to 1.6618 and then 1.6747, with support at 1.6220." - Citigroup.

"With GBPUSD hovering above some key support levels, we broke through these and rates dropped sharply. Key support now sits at 1.6260 for the pair and tonight’s close will be worth keeping an eye on for any clients with a USD exposure." - Investec.

EUR/USD:

ICN Financial say:

"The pair failed to confirm stability below 1.3590 during the downside attempts yesterday, as it remained stable above the minor support 1.3560 levels. Therefore, trading remained within the ascending channel showing on graph, and the bullish possibility remains valid if the pair didn’t break 1.3520 levels.

"Stochastic and Linear Regression Indicators are negative and MACD is trading below line 50 which is negative, so we will reverse to negativity if the pair broke 1.3520 directly. As long as the pair stabilised within the ascending channel, we are forced to remain neutral based on the technical analysis rules."

"Concern over Australia economic prospect triggered the AUD/USD to break below 0.8821 support this morning, the worst among major currencies. The weak employment data may reflect the slowing in Australia economy. The RBA will likely keep the easing measures unchanged this year, which may weigh on the AUD. AUD/USD may fall further to 0.8000 in medium term. Technically, AUD/USD may drop to 0.8579, even fall further to 0.8067, with resistance at 0.9000." - Citigroup.