A new higher low on the daily charts for the pound to dollar exchange rate indicates more gains are on the way.
The near-term picture continues to favour the British pound over its US counterpart with the GBPUSD entering a strong recovery rally from a previous downturn.
Analysts note that GBP/USD recoveries tend to extend for protracted periods.
What does the future hold though?
"The area around $1.5380 is likely to prove problematic, but so long as the price remains above $1.53 and also above the 50-hour SMA ($1.5331) then I expect further gains for this pair. Support is possible around $1.5250 should the price weaken, with a close below possibly indicating that the October move higher will retrace and revisit $1.5150," suggests Chris Beauchamp, Market Analyst with IG in London.
ANZ Research Lower Pound v Dollar Forecasts Longer-Term
Looking at the longer-term picture it is the Bank of England that will likely hold sway over the British pound.
We have heard from analysts at ANZ Research who have told clients they are lowering their long-term forecasts on the British pound to dollar exchange rate:
"In the current (low) inflation environment, BoE Governor Carney’s continued insistence that the Bank will be consider rate hikes in the near future sounds increasingly hollow.
"We see GBP as a mid-pack performer in a broad USD rally through 2016. We are also wary of a referendum on EU membership by end-2017."
ANZ's near-term GBP forecasts are largely unchanged, but the mid-2017 forecast lowered to 1.42 from 1.54 confirming the present longer-term trend lower is likely to ultimately stay with us for months to come.
US Dollar to be Supported by US Fed Policy
While the Bank of England will determine British pound direction the same can be said for the US dollar which has the US Federal Reserve to rely on.
Early October has seen a number of key FOMC members (eg Lockhart, Dudley and Fischer) reaffirm that their base case scenario was for the Fed to begin raising rates by the end of 2015.
However, a high degree of uncertainty surrounds these expectations.
Indeed, for the Fed to hike rates in 2015 ANZ Research argue that a number of pieces need to fall into place including: robust domestic dataflow to give the Fed confidence that inflation will return to 2%; a stabilisation in EM; and a reduction in financial market volatility.
The focus this week will be retail sales and CPI data.
The outlook for the dollar exchange rate complex therefore remains dependent on upcoming data events and unless we get some spectacular upside surprises the pound sterling could continue to hold the near-term advantage.
Sterling in Stronger Start to the Week
Today, sterling was in better shape compared to the end of last week. As was the case for the euro and the dollar, there was also no high profile news to guide sterling trading.
Cable this time outperformed EUR/USD.
EUR/GBP declined back to the 0.74 area. Cable is changing hands in the 1.5360 area, near a first resistance at 1.5383 (last week top).
Markets look out for several BoE speakers over the next days. Until a few weeks ago, several BoE members indicated that they didn’t want to wait too long to raise rates. Will they keep that assessment after some disappointing UK eco data and adverse global market developments?
