The Pound Sterling to US Dollar (GBP/USD) exchange rate spent the second half of the week trending in the region of a five-year low while the Pound Sterling to Euro (GBP/EUR) currency pair was struggling to hold its own in the face of easing ‘Grexit’ concerns. With UK and US inflation data ahead, further volatility can be expected.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast to Rebound? US/UK Inflation Key
After dropping below the key technical support level of 1.50, the Pound Sterling to US Dollar (GBP/USD) exchange rate extended declines until it reached a five-year low.
The UK’s sub-par wage growth data, coupled with the insinuation that the Bank of England (BoE) is just as likely to cut interest rates as raise them saw the Pound stumble against the US Dollar mid-week and fall to its lowest levels for five years.
The Pound staged a brief rebound following the Federal Open Market Committee’s (FOMC) interest rate announcement, but mixed opinions regarding the Fed’s intentions towards borrowing costs later triggered fluctuations and the GBP/USD pairing trimmed gains.
Although the FOMC removed the word ‘patience’ from its interest rate commentary, it’s tone was still fairly dovish and it intimated that both the labour market and inflation would need to pick up before borrowing costs are reassessed.
After dropping to a low of 1.46, the GBP/USD pairing returned to trending in the region of 1.48 before the weekend.
According to one economist; ‘the Fed is no longer expecting a strong rebound over the coming years. In my view, the risks are rising that the Fed is becoming too pessimistic about the outlook’.
Similarly, a HSBC analyst implied that the US Dollar’s bullish run is coming to an end. If this assessment is accurate, the GBP/USD exchange rate could return to the 1.50 level in the weeks ahead – if the UK’s ecostats meet forecasts that is.
As stated by Bloomberg; ‘US tolerance for USD strength has its limits. US policymakers may be able to ignore the Dollar’s strength if the US economy expands fast enough to generate sufficient internal inflation to offset the disinflation it is importing by virtue of the stronger Dollar. This has not been happening, with the Fed’s preferred measure of inflation remaining below target.’
For that reason, this week’s UK and US inflation reports will be of particular significance.
If the pace of US Consumer Price growth slows, it’ll up the odds of the Fed leaving borrowing costs on hold beyond June, or else taking steps to weaken the domestic currency.
Low US inflation could mean a stronger GBP/USD exchange rate.
A softer rate of UK inflation, meanwhile, would weigh on the Pound as it would give the Bank of England greater scope to leave borrowing costs on hold.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Loses Momentum, Further Declines Forecast if Greek Reforms Are Accepted
Over the course of this week the Pound Sterling to Euro currency pair had continued its bearish run, extending losses in the wake of upbeat sentiment data for Germany and the Eurozone.
On Friday the Euro derived additional strength after Greece agreed to present its creditors with a new reform plan, leading the nation’s PM to state that he was feeling ‘optimistic’ about the situation.
While a date for presenting the reforms hasn’t been set, if the plans are accepted and Greece is allocated new funding, the odds of a ‘Grexit’ will sharply decline and the Euro could rally.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast – Durable Goods, Retail Sales Ahead
While the week’s inflation numbers may prove the biggest cause of market movement, the Pound Sterling to US Dollar (GBP/USD) exchange rate may also experience volatility as a result of US Durable Goods Orders numbers and the UK’s retail sales report.
Durable goods orders are expected to increase by 0.6% in February following the previous month’s 2.8% gain. UK retail sales, meanwhile, are believed to have risen by 0.4% on the month and to produce an annual figure of 4.7%.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3798, the US Dollar to Euro (USD/EUR) exchange rate is currently trending in the region of 0.9403, the Euro to US Dollar (EUR/USD) exchange rate is currently trending in the region of 1.0631, the Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4676.
