Pound to Dollar Predictions: Will GBP/USD Exchange Rate Reach Parity This Week?

January 20, 2015 - Written by John Cameron

STORY LINK Pound to Dollar Predictions: Will GBP/USD Exchange Rate Reach Parity This Week?

An unusual turn of events during yesterday’s trading session saw investors shift out of US Dollar-denominated assets.

Market participants have been decidedly jumpy since the Swiss National Bank (SNB) unexpectedly pulled its 1.2000 EUR CHF floor last Thursday.

Risk Aversion Hurts US Dollar Exchange Rate

The wide-spread attack of the jitters has seen investors seek out safe haven assets – a move which would ordinarily favour the world’s traditional reserve currency of choice – the US Dollar (currency:USD).

However, the fallout from Switzerland’s actions has had an unanticipated effect, as Michael Sneyd of BNP Paribas explained yesterday, ‘the theme we are seeing is one of general risk reduction. Investors generally lost money when the floor went. As a response we are seeing investors generally reducing risk in the FX market. Bullish dollar is the most prevalent theme, so as people reduce exposure its long-Dollar trades, which are trimmed back the most.’

Underperformance Forecast for US Dollar

For the reasons set out by Sneyd above, the US Dollar is forecast to underperform the other sixteen most actively traded global currencies in the lead-up to Thursday’s all-important European Central bank monetary policy announcement.

EUR USD Exchange Rate at Lowest for Over a Decade

The euro US Dollar exchange rate (EUR USD) slumped to its lowest level since November 2003 in the immediate aftermath of the SNB’s game-changing announcement of last Thursday. The scrapping of the 1.2000 EUR CHF floor by the SNB was viewed by investors as a tacit admission by the SNB that it will not be able to forcibly keep CHF weak against a sharply weakening EUR after 22nd Jan.

Euro to Dollar Rate Forecast to Tumble

If market participants are correct and the SNB’s action is indeed a strong tip that the European Central Bank will be announcing all-out QE before the end of this week.

There could be further losses to come for the EUR USD exchange rate; if the SNB does go for all-out QE, then many commentators forecast that the pair will drop down towards the parity level – a threshold it last visited at the start of 2002.

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TAGS: American Dollar Forecasts Currency Predictions Dollar Poun Forecasts