US Dollar Exchange Rate Forecast to Strengthen on Unwarranted Losses

The US Dollar softened against the Pound (USD/GBP) on Monday after last week’s International Monetary Fund (IMF) conferences sparked fears for global growth. As the prospect of the US Federal Reserve hiking rates in the near future diminished, the US Dollar depreciated.

The US Dollar to Pound exchange rate has been trading in a narrow range on Monday, fluctuating between 0.6201 and 0.6227 at the session high point. Meanwhile, the USD to EUR exchange rate has seen slightly more movement and is presently residing at 0.7881.

The IMF meetings warned of the possibility of a global slowdown, a factor which could affect the US economic recovery. As a result, investors have re-evaluated their bets for the US Federal Reserve to hike rates in the near future.

Forex expert Jane Foley commented on the recent US Dollar movement saying: ‘We’ve seen the Dollar soften. You’ve got global growth stuttering a bit compared to market expectation. You’ve got to ask yourself if that’s an environment where the Fed is going to be in a rush to hike interest rates.’

Federal Reserve officials, such as Vice Chairman Stanley Fischer, suggested that the US could witness later increases in borrowing costs. Fischer stated: ‘If foreign growth is weaker than anticipated, the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise.’

Fed Governor Daniel Tarullo also commented in a similar tone suggesting: ‘I’m worried about growth around the world right now. This is obviously a set of things that we have to think about in our own policies going forward.’

Meanwhile, the Pound has been softer against other majors on Monday ahead of the release of the UK’s highly influential UK Consumer Price Index—the core measure of inflation. At present, economists have forecast inflationary levels will weaken in September on the year from 1.5% to 1.4%.

If UK figures do prove that inflation is softening, the Bank of England may use it to support their present stance of maintaining low interest rates. Furthermore, if tomorrow’s data does sink to 1.4% it will mark a five-year low and a move further away from the bank’s 2% target.

When it comes to interest rate prospects, the European Central Bank (ECB) is a long way off hiking any borrowing costs in the Eurozone. Recent stimulus measures to kick-start the Eurozone saw the central bank slash interest rates to 0.05%, a historical low.

Furthermore, Germany – the largest and most influential economy in the Eurozone, has been performing poorly of late—a factor of great concern for the 18-nation area. Monday saw the release of the German Wholesale Index which saw prices decline by -0.9% in September on the year.

US Dollar to Pound (USD/GBP) and Euro (USD/EUR) Exchange Rate Forecast

The US Dollar may be subject to fluctuations on the release of the US Monthly Budget Statement on Tuesday, and Advance Retail Sales figures on Wednesday. The UK Consumer Price Index could cause the ‘Buck’ to climb versus Sterling if the figures drop as economists have forecast. However, the ZEW German Economic Sentiment Report for October will also be released on Wednesday and is likely to stumble, which may allow the Pound and the US Dollar to gain against the Euro.

UPDATE

The US Dollar to Pound Sterling exchange rate is currently trending in the region of 0.6232.

The US Dollar to Euro exchange rate is currently trending in the region of 0.7873.

Having softened considerably after the International Monetary Fund reported a global economic slowdown, the US Dollar is now set to gain on speculation that its longest losing streak since July was unwarranted. Domestic data has suggested that the US economic growth is set to outpace many currencies that are currently trending higher.

With very little in terms of significant American data the US Dollar is likely to appreciate over the course of the day. However, the US Monthly Budget Statement does have the potential to halt those gains if the data prints negatively.