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Forecast - Pound Sterling Under Pressure, Euro to Dollar Exchange Rate Remains Low

July 28, 2014 - Written by John Cameron

Currency News UK: Forecast - Pound Sterling Under Pressure, Euro to Dollar Exchange Rate Remains Low - The world’s number one currency pair dipped to within a tenth of a cent of its lowest level since last November during early trading today.

The euro to US Dollar exchange rate slumped to 1.3427 EUR/USD during the early part of the European equities session as investors increased their Dollar-positive positions.

The latest figures from the US-based Commodity Futures Trading Commission showed that the number of forward positions held by institutional investors predicting that the Buck will strengthen had jumped from 62,846 during the middle part of the month up to 88,823 last week.

Petr Krpata of Dutch investment Bank ING explained that, ‘we expect Dollar strength to unfold, we are going to see divergence in monetary policy.

In the U.S. it will be slowly and surely towards eventual rate hikes. We are going to see a rise in short-term U.S. yields and this should bode well for the Dollar.” The number of Net Dollar Long positions suggests that Krpata may be correct.

Meanwhile, the number of Bullish bets on the Pound Sterling (currency:GBP) was heading in the opposite direction.

The latest figures also showed that the number of Net Sterling Long positions held by hedge fund managers had fallen to their lowest level since before Easter.

The market’s reaction to last Friday’s ostensibly positive UK Gross Domestic Product growth numbers was instructive on this matter; the Q2 GDP number printed at a year-on-year 3.1% as per analysts’ expectations, meaning that the level of economic activity in Britain had climbed back to the level it touched just before the global financial crisis of 2008.

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However, the Pound failed to break new ground following the release as investors instead focussed on the previous day’s below par June Retail Sales numbers. Increasingly, it would appear that all of the good news is now factored-in to the pricing for Sterling.

Looking ahead, tomorrow morning’s UK Mortgage Approvals data for last month has the potential to be market-moving for the Pound.

Analysts are anticipating a showing of 63,000 – up from the previous month’s print of 61,700.

However, with the Bank of England having introduced new regulations aimed at curbing the level of lending from UK retail banks to British borrowers in the form of secured finance, an increase in the number of domestic mortgage approvals is by no means guaranteed.

A disappointing result could send the Pound to Dollar (GBP/USD) exchange rate further Southwards into the 1.6000s.

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