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Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Edge Lower despite Overdone Dollar Surge

US Dollar Currency Forecast

The Pound Sterling to US Dollar (GBP/USD) exchange rate edged lower by around -0.11% on Friday morning.

In the wake of dovish comments from the Bank of England’s (BoE) Chief Economist, the Pound softened versus the majority of its most traded currency competitors. Andrew Haldane stated that in the current climate, a benchmark rate cut is just as likely as a rate hike.

The US Dollar, meanwhile, softened versus most of its major peers amid fears that Thursday’s surge was overdone and unjustified. Further declination can be attributed to trader profit taking after the surge opened up some attractive selling positions.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4744.

Yesterday…

The Pound Sterling to US Dollar (GBP/USD) exchange rate softened by around -0.37% on Thursday morning.

Wednesday’s British labour market data provided some disappointing results, which caused the Pound to slump significantly versus many of its major peers. The recent bearish run, however, has been seen as overdone and the Pound recovered some of its losses on Thursday. Additional appreciation can be attributed to a softer single currency.

The US Dollar, meanwhile, strengthened versus the majority of its major peers after the post-rate decision speech from Federal Reserve Chair Janet Yellen retired rhetoric such as ‘patience’ which irritated hawks. The gains have been minimal, however, as Yellen reiterated the stance on data-centric rate revisions with a particular focus on labour market data.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4904.

Pound Sterling (GBP) Exchange Rate Edges Higher as Euro Slides

After having appreciated significantly over the past few days, the Euro returned to declination on Thursday. This was predominantly the result of the potential for a Greek exit from the Eurozone  weighing on investor confidence. A weaker shared currency is beneficial for the UK as it opens up opportunities for cheaper imports.

‘I will repeat to him (Prime Minister Alexis Tsipras) what I’ve already told him twice: Greece must undertake the necessary reforms, Greece must ensure that the commitments it made to the Eurogroup in 2012 and more recently are followed up on,’ European Commission President Jean-Claude Juncker told France’s Europe 1 radio.

The common currency is also depreciating as a result of quantitative easing which is finally having the desired devaluation effect.

The Pound Sterling to US Dollar (GBP/USD) exchange rate dropped to a low today of 1.4792.

US Dollar (USD) Exchange Rate Trending Higher despite Relatively Dovish Fed

In the initial aftermath of the unchanged rate decision and following press conference, the US Dollar declined versus the majority of its most traded currency rivals. This is due to the fact that dropping words like ‘patient’ was already priced-in. With Yellen stating that labour market data would determine rate hikes, hawks pulled away from the Dollar, arguing that recent labour data is already positive enough to warrant a cash rate increase.

Although the dovish statement disappointed hawks, the market was generally pleased with the idea of very gradual hikes and the US Dollar recovered losses overnight.

‘Financial markets cheered’ the statement and Ms Yellen’s testimony, wrote economists at ABN Amro, noting that ‘most asset classes loved the idea of slower rate hikes, except of course the US Dollar’.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Hold Losses

With much improved sentiment towards the Federal Reserve, and with political uncertainty weighing on demand for the British asset, the Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to hold losses for the remainder of Thursday’s trade.

There is a possibility of GBP/USD fluctuations, however, with US labour data due for publication later on Thursday. This will be closely scrutinised by analysts given the Fed’s desire to see improved labour conditions before hiking the cash rate.

The Pound Sterling to US Dollar (GBP/USD) exchange rate reached a high of 1.5010 today.