GBP/USD: Losses Forecast for the Pound to Dollar Exchange Rate

March 11, 2015 - Written by John Cameron

STORY LINK GBP/USD: Losses Forecast for the Pound to Dollar Exchange Rate

Last Friday’s go-ahead US jobs numbers have caused futures markets forecast that the US Federal Reserve will be raising its benchmark interest rate during the early part of Summer and the pronounced turnaround in investors’ expectations has caused the Pound Sterling (currency:GBP) to lose ground against the US Dollar (currency:USD) during the first two sessions of this week.

Investors’ fears that the Fed may be about to start an interest rate hiking cycle have also led analysts to predict that the benchmark US equities index may be about to experience a pronounced correction. David Bianco of Deutsche Bank certainly concurs; he stated yesterday that, ‘strong job growth and falling unemployment, despite still-slow GDP, suggest that Fed hikes are on the horizon and likely strengthen the Dollar further. We see risk of a near-term 5 to 9 per cent dip.’

If this forecast comes to pass then expect the Commodity Dollars to hoover up significant support. In such a circumstance, the Pound Sterling is predicted to post strong gains against the Canadian Dollar (currency:CAD), the Australian Dollar (currency:AUD) and the jumpy South African Rand (currency:ZAR). Meanwhile, the outlook for the US Dollar (currency:USD) is considerably more positive that it was a week ago, with many analysts forecasting that the GBP USD exchange rate will drop back into the 1.4000s sooner rather than later.

Meanwhile, the US Dollar’s recent bull run against the euro (currency:EUR) could prove to be a contributory factor to thee predicted plunge in the S&P 500 share index. Yesterday’s session saw the euro US Dollar exchange rate drop to its lowest level for almost twelve years and part of the reason that equities in the US will drop is the attendant fall in company earnings thanks to the rapid strengthening of the Dollar in recent months.

The euro had another nightmare session in the markets yesterday thanks to the obvious drags of Quantitative Easing and Greece. However, there was another negative factor for the single currency yesterday; much has been written about austerity measures in Greece, Portugal and other struggling euroland states, but yesterday’s announcement that the EU had accented to France’s request for a two year deficit extension emphasised the fact that many major European states are also struggling economically.

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