Pound to Dollar Forecast: USD and GBP Strength Ahead say Standard Chartered
Standard Chartered are forecasting the British pound and US dollar to lead the G10 and Asian currencies over coming months.
The pound is advancing against the dollar once more with a break of the 1.55 barrier now possible.
Short-ter, "but with the 100-day SMA capping gains, it needs a catalyst otherwise it will give up part of last week's strong gains. The main U.K. event risk this week is retail sales and after the British Retail Consortium's stronger sales report, we believe that consumer spending recovered further in September and if we are right, this will be significant enough to drive GBP/USD firmly above 1.55," says Kathy Lien, MD at BK Asset Management.
There are however signs that GBP/USD strength will ultimately be capped.
Standard Chartered, in a monthly foreign exchange forecast note have told clients they continue to expect the USD to strengthen, even if it faces short-term challenges from the Fed’s rate hike delay, as we believe the broader case for a stronger USD remains intact.
The call comes at a time when both the US dollar and pound sterling have been under sustained pressure owing to markets pushing back their forecasts for the first interest rate rise in years at the US Federal Reserve and Bank of England.
Despite interest rate forecasts moving against the GBP and USD of late, "monetary policy divergence remains critical to our view; higher US short-term rates, as the Fed hikes while most other central banks, both in Developed Markets (DM) and Emerging Markets (EM), maintain or add to existing stimulus," note Standard Chartered.
"While we acknowledge an increasingly benign US rate outlook is a risk to our USD view, on balance we believe the likely policy divergence between US rates and elsewhere will be significant enough to send the USD on its next leg higher," say Standard Chartered.
The London-based but Asia-focussed bank expects further USD and GBP strength against other major and Asia ex-Japan currencies over the next 3-6 months.
Looking at the pound to dollar exchange rate in particular, Standard Chartered say they are neutral on GBP/USD.
This is an understandable call - how would two currencies that are forecast to outperform the market perform against each other? The strength in both is predicted to ultimately end in a stalemate when GBP and USD are put head to head.
But, expect the British pound to outperform G10 and Asia ex-Japan currencies.
"UK economic data continues to improve, particularly with respect to consumption, wage growth and core inflation, while foreign inflows remains supportive," say Standard Chartered.
Against this backdrop, it is believed that the BoE is likely to hike interest rates early next year, ahead of what markets currently expect.
Market pricing is pricing the pound exchange rate complex lower for a mid-2016 hike.
