GBP/USD forecast - page 18
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BoE To Cut In November; We Continue To Target Sub-1.30 in GBP/USD
The Bank of England noted at their policy meeting on Thursday that a majority of members continue to anticipate further easing this year if the outlook remains broadly consistent with the August Inflation Report.
Our economics team no longer expect a further increase in QE this year but they continue to forecast a 15bp rate cut at the November meeting, which is considerably more than current market pricing.
We remain broadly bearish on the GBP accordingly targeting a break below 1.30 in Cable over the coming weeks.
Furthermore, BNP Paribas STEER signals GBP is expensive, currently hold a short GBPUSD and long EURGBP trades.
British Pound to Dollar Rate Falls by +1% as US Inflation Heats Up
GBP/USD fell sharply in the final session of the week after the release of US inflation data resulted in growing expectations that a September interest rate hike would be delivered by the US Federal Reserve.
Shop prices in the United States are rising faster than economists had expected - and this is positive for the US Dollar.
US core CPI rose 0.3% on a monthly basis in August, economists had forecast 0.2% growth.
While this may appear small, it is a bit deal as annual core CPI now stands at 2.3%.
Markets are buying the Dollar as a bet that the final major data release ahead of the US Fed’s September decision may sway the Board of Governors towards an interest rate rise.
The GBP to USD exchange rate fell by a percent in the face of a broad-based Dollar rally and is holding just above 1.30.
Pound Sterling was therefore the second-worst performing currency of the week in the G10 arena, after the Canadian Dollar, on the back of this performance
The EUR to USD exchange rate has fallen sharply too, by 0.63% and is now trading at 1.1158.
The US Dollar index - a broad-based measure of the USD across global foreign exchange markets - was up at 99.09.
“While other economic indicators have disappointed recently, August CPI inflation bucked the trend and gave Fed hawks some support in their battle to raise interest rates,” says Royce Mendes at CIBC.
Despite the strong rise, Mendes does not anticipate a September interest rate rise on the back of this data and prefers December for the month in which the Fed acts.
Indeed there is now a +- 20% probability of a hike according to September Fed Fund futures.
So while September is not a shoo-in, there's a very strong chance that Janet Yellen will set the stage for tightening in December at the September meeting.
"While headline inflation remains stuck around 1%, core inflation is comfortably above the Fed’s target. Nevertheless, the data are unlikely to change the Fed’s decision next week. After overall somewhat weaker data in the last few weeks, the Fed is unlikely to hike rates in September," says Piet Lammens at KBC Markets.
There could therefore be the chance that markets have over-egged the Dollar on this one set of data.
Forecast for the Pound to Dollar Rate: Turning Bearish Over Coming Days
The short-term trend for the GBP to USD conversion has slipped from bullish to bearish.
The US Dollar strengthened notably following the release of US inflation data on Friday the 16th September.
Year-on-year inflation in the US rose 1.1% compared to 1.0% expected and 0.8% previous; Month-on-month it rose 0.2%, beating forecasts of 0.1% and above the 0.0% July figure.
The data increases the chances the Federal Reserve will raise interest rates before the end of the year.
The probability of a rise at the FOMC meeting next Wednesday, based on Fed Funds Futures was still only 15%.
The probability of a hike in November is 23.8% and the probability of rate hike in December 52.8% - up from under 50% before the CPI release.
The event saw the Pound to Dollar exchange rate slip down to 1.30 on the inter-bank markets. This saw rates for international payments on bank accounts range between 1.2633 and 1.2542.
Independent providers are meanwhile quoting between 1.2880 and 1.2789.
The Pound is meanwhile trading heavy after the Bank of England (BOE) monetary policy committee decided to leave policy unchanged on Thursday but failed to defer expectations for further policy measures to be announced in November.
The bank has adopted something of a wait-and-see approach, although there is a high chance of further stimulus in November which remains ‘live’ for a ‘top-up’.
Member’s McCafferty and Forbes thought there was no need for more bond buying.
This means there is a possibility of a rate cut in November, and a lesser chance of more QE (bond-buying), however, more strong data could change that expectation, which would strengthen sterling.
From a technical perspective the pair has just reversed its very short term trend and is falling, and likely to continue.
It has clearly broken below the 50-day moving average and is going lower.
Despite the double bottom pattern which has been forming during the summer, the upside break failed to extend to its target and now the exchange rate is dropping instead.
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Sub-1.30 Sell-Off To Extend Further; Staying Broadly Bearish
The largest mover Tuesday was GBP, with Cable breaking 1.30 on the downside for the first time since mid-August.
We remain broadly bearish on Sterling. Short GBP positioning was squeezed considerably over the past month, from -46 to -34 according to BNP Paribas FX Positioning Analysis, as UK data surprised to the upside.
Our short-term fair value model BNP Paribas STEER signalled that this positioning squeeze had pushed GBP beyond its short-term fair value – STEER for GBPUSD currently stands at 1.2896.
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GBP/USD
The pair rose during yesterday's session after the price found support at 1.2945 for a second consecutive day. The meeting at the Federal Reserve contributed to increased volatility, which was peaking at 1.3046. Overall pound rose by 42 pips to 1.3028. The pair remains below average values. A break of 1.3070 would open the possibility of a test of 1.3150/60.
GBP/USD Rising Trendline Bounce Met With Horizontal Resistance
A two-day recovery in GBP/USD has stalled out at significant horizontal resistance found at 1.3081. The pair was seen turning higher on Wednesday, ahead of the FOMC meeting, as a rising trendline that connects the spike low from early July with lows from mid-August came into play. The pair gained upside momentum as the Fed meeting triggered broad-based weakness in the Greenback.
GBP/USD is largely seen trading in a range post-Brexit. The initial sentiment seen among many market participants immediately following the EU referendum was bearish, but stronger than expected data out of the United Kingdom has shown that the immediate impact of the referendum may have been over exaggerated. While a clear timeline for the EU divorce has not been set, it can potentially take another one to two years prior to the “exit”, somewhat negating the urgency in bearish Sterling positions.
The combination of stronger data and the time required for the “Brexit” puts emphasis on the rising trendline as the exchange rate returns towards range lows. There remains potential for a broader recovery in the currency pair, while the first hurdle at 1.3081 has already shown signs of the recovery stalling out. The level has been pivotal as of late, keeping the exchange rate higher in the second half of July, and once again providing some support in late August. The 4-hour chart shows the pair reaching the level during European trading today, and while the most recent candle is on track to post a third consecutive reversal candlestick, a turn lower has yet to be seen.
The US Dollar index (DXY) posted a sharp reversal from lows today to erase early day declines. DXY reached a low of 95.05, reflecting a loss of 0.46% on the day, but turned sharply higher as a sustained break of support at 95.11 failed. The subsequent recovery has reached a high of 95.47, a few points shy of the daily open of 95.50. While the Dollar recovered, the majority of the majors have shown strong signs of reversal, while GBP/USD has remained near highs.
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