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Pound to Dollar Exchange Rate: 'Mid 1.26s More of Less Pivotal for GBP Now'

December 7, 2016 - Written by Frank Davies

The end-of-week session finds the pound to dollar exchange rate modestly higher on the day at 1.26038.

Where next for GBP/USD in short-term outlook?

"Cable’s mid-week slide failed to generate any real follow through and the market remains essentially range bound between 1.25/1.29." note Scotiabank in their daily report to clients.

"Weakness below 1.2635/40, which we thought yesterday would lead to more downside pressure on spot, was not sustained. We see the mid 1.26s as more or less pivotal for the GBP on the day now.—better bid above but likely better offered below."

The latest UK manufacturing data has weakened the GBP/USD exchange rate further today after sparking concerns that other strong reports may have been giving a false picture of the economy.

The US Dollar is in a weak position overall, with strong Fed hike bets firmly priced into USD, with the bullish surge against Pound Sterling an uncharacteristic movement today.

Weak Manufacturing and Trade Deficit Update Weakens GBP/USD Exchange Rate

Two significant headwinds are keeping GBP/USD firmly on the decline today; poor manufacturing data and a parliamentary vote on the timing of the UK’s exit from the European Union.

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UK production data has significantly disappointed forecasts, showing major contractions instead of mild growth.

Industrial production fell -1.3% month-on-month and -1.1% year-on-year in October, despite forecasts of 0.2% and 0.5% growth respectively.

Manufacturing production declined -0.9% month-on-month and -0.4% year-on-year against predictions of 0.2% and 0.7% respectively.

The manufacturing performance was the worst since February, while industrial production was at its worst since September 2012, sparking fears that the strong post-Brexit PMIs have been presenting a false picture of the economy.

This belief was further worsened by news that the ONS had made a reporting error in its trade deficits before the referendum, making the shortfall smaller than first thought until the Brexit vote; this means that the post-vote widening is more serious than it initially appeared.

Lacklustre US Dollar able to Advance on Pound Sterling Weakness



The markets are largely in wait-and-see mode now ahead of the Federal Reserve’s next monetary policy meeting, with USD responding to strength and weakness in other currencies rather than exhibiting any intrinsic momentum of its own.

In positive news, SoftBank CEO Masayoshi Son has announced after a meeting with Donald Trump that he will invest $50 billion in the US, creating 50,000 new jobs.

SoftBank, a telecoms and internet giant based in Japan, already owns much of US Sprint Corp, but its plans to acquire T-Mobile were blocked by the Obama administration.

On the other hand, former CEO of Office Depot, Steve Odland, warned that levying protectionist tariffs on imports to the United States runs the risk of inhibiting economic growth.

GBP/USD Exchange Rate Forecast; Will Pound Recover from Brexit Fears?



The ongoing Supreme Court hearing into the government’s intended use of ‘Royal Prerogative’ to trigger Article 50 without any input from Parliament will finish tomorrow.

The Justices won’t announce their ruling until 2017, but investors are nonetheless likely to pick apart the four-day proceedings for clues as to which side seems to have made the more convincing argument.

Meanwhile, the upcoming US data is unlikely to drastically alter the US Dollar’s fate, given how high rate hike bets are.

United Overseas Bank believes that the outlook for the GBP/USD is actually bullish, observing;

‘The partial profit taking level of 1.2770 that was indicated two days ago was met as GBP touched a high of 1.2775 yesterday. As noted, this is a major resistance and while technically the next resistance is at 1.2865, the odds for further GBP strength are not high. That said, confirmation of a short-term top is only upon a move below 1.2630 (a breach of this level would indicate the start of a consolidation phase).’

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