GBP/USD Forecast: Pound Dollar Exchange Rate Gains Predicted

Modified: Monday, 12 January 2015 10:09 BST - Written by John Cameron

STORY LINK GBP/USD Forecast: Pound Dollar Exchange Rate Gains Predicted

Data published by the Commodity Futures Trading Commission (CTFC) last Friday revealed that currency market speculators have upped their bets that the US Dollar (currency:USD) will strengthen against the eight other most widely traded currencies to their highest level for over a decade.

The CTFC figures showed that the number of institutional investors holding ‘Dollar long’ positions during the week ending 6th January had jumped to a whopping 431,961. However, the data did not convince everyone that the Greenback’s recent strong gains against the Pound Sterling are set to continue; Kit Juckes of Societe Generale stated just before the weekend market shutdown that he is, ‘alarmed by consensus and positioning, both of which are extreme.’

Juckes went on to espouse a contrarian position, viewing the overwhelming support for the Buck as a form of ‘feeding frenzy’ which is typical of a market which is about to top out. He went on to assert that, ‘a correction seems likely very soon, if it isn’t already starting.’

Price action during Friday afternoon certainly saw the Pound Sterling claw back a small portion of its recent losses against the Buck; the GBP USD exchange rate had been threatening to break down through the psychologically significant 1.5000 threshold during Thursday trading, but support ebbed for the US tender as the market close down approached, sending GBP USD up to as high as 1.5174.

Although Friday afternoon’s American labour market numbers once again showed a strong level of job creation and another fall in the overall rate of unemployment, investors still shifted out of the Buck. The Federal Reserve confirmed in its monetary policy announcement on Wednesday that it will not be increasing interest rates for several months and the Friday afternoon’s official numbers which revealed an unanticipated drop in American wages provided further reason for the Fed to postpone a tightening of policy.

Look for Wednesday’s US Advance Retail Sales data and Friday’s all-important American inflation numbers to provide market participants with further information regarding the likely future direction of the Greenback.

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