Pound Sterling to Dollar PREDICTIONS: Could GBP USD Exchange Rate Tumble To 1.5 Level?

July 25, 2014 - Written by John Cameron

STORY LINK Pound Sterling to Dollar PREDICTIONS: Could GBP USD Exchange Rate Tumble To 1.5 Level?

Currency Exchange News UK: Thursday's session saw the Pound to Dollar edge back down into the 1.6000s for the first time since the final week of last month, leaving investors to speculate on whether the US Dollar exchange rate forecast will enjoy enough near-term support to hold below 1.7000 GBP/USD against Sterling.

The improvement for the US Dollar to Pound and Euro exchange rates over the past ten days has been driven by US Federal Reserve Chair Janet Yellen’s comments which suggested that America’s central bank might be ready to hike its interest rates sooner rather than later and that when the first increase came, it would be the first of several in quick succession.

As the markets close for the weekend, we find the following key sterling foreign exchange positions:

- The pound australian dollar rate is 1.80675
- The pound euro exchange rate is 1.26405
- The pound dollar exchange rate is 1.69750.

The latter part of yesterday’s session brought twin announcements which may provide further support for the Greenback into the medium term.

The first development saw the widely-respected International Monetary Fund (IMF) slash its 2014 Gross Domestic Product growth forecast for the global economy from 3.7% down to 3.4%.

The downgrade to expected levels of economic activity was driven by a cut to the outlook for several major emerging market economies by the IMF. The organisation’s forecast for Russia, in particular, was trimmed significantly following the escalation of tensions in the Ukraine since the shooting down of Malaysia Airlines flight MH17 earlier this month.

The marked downward revision to the world economy’s prospects by the IMF threatens to trigger a pronounced flight to quality from institutional investors.

Such a move would be likely to favour the Buck, which is still considered the world’s number one reserve currency. Any further signs that the global recovery is stalling during the remainder of this year are likely to send the GBP USD exchange rate lower still.

Meanwhile, an announcement late yesterday from the International Accounting Standards Board (IASB), could prove to be one such threat to future levels of world growth.

The IASB stated that it will be introducing rules which will force global retail banks to record the potential level of bad debts contained in their loan books before any losses are realised. Banking analysts suggest that banks across the globe will as a result have to maintain higher capital ratios which will in turn decrease the aggregate level of lending to private individuals and to companies.

The worldwide recession which began in 2007/08 was triggered by a major contraction in the global credit market. If the new regulations from the IASB elicit a similar reduction in credit flows, then the world economy could slip back into contraction. Look for the Pound to Dollar (GBP/USD) exchange rate to track Southwards towards the 1.5000 threshold in such a circumstance.

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TAGS: American Dollar Forecasts Currency Predictions Dollar Poun Forecasts