– Written by
David Woodsmith
STORY LINK Pound-to-Dollar Forecast: Four-Year Best GBP Rate on Crisis of Confidence
The Pound to Dollar exchange rate (GBP/USD) has surged to four-year highs above 1.38 as markets grapple with a growing crisis of confidence in the US dollar.
Sentiment-driven selling accelerated after weak US consumer confidence data and comments from President Trump were interpreted as welcoming a weaker currency.
GBP/USD Forecasts: Surges to 4-Year Best Exchange Rate
The Pound to Dollar (GBP/USD) exchange rate surged to 4-year highs above 1.3850 on Tuesday before a corrective retreat to below 1.3800 on Wednesday as the dollar attempted to recover from a very sharp sell-off.
UoB noted the risk of a correction and added; “Overall, only a breach of 1.3710 would indicate that the advance from the middle of last week has come to an end.”
The next key resistance levels are at 1.3925 and 1.4000.
The dollar index slumped to 47-month lows below 96.00 before a tentative recovery to 96.20.
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According to ING; “Should DXY manage to break fully clear of last year’s lows near 96.20, we could be well on the way to a decent 3% leg lower in the dollar. It is hard to back that up with fundamentals, but the burden really is now on the dollar to prove otherwise.”
Barclays noted the threat of high volatility if confidence dominates price action; “We are still in the heat of the moment and it is hard to consider fundamentals at a time when markets move so much on sentiment and on such short periods of time.”
US data failed to support the dollar with consumer confidence dipping to a 12-year low of 84.5 for January from a revised 94.2 previously and below consensus forecasts of 90.5.
Conference Board Chief Economist Dana M Peterson commented; “Confidence collapsed in January, as consumer concerns about both the present situation and expectations for the future deepened.”
In comments on the economy, President Trump also suggested that a weaker dollar was a positive factor which helped trigger a fresh sell-off.
According to MUFG; “The comments reinforce the impression amongst market participants that the Trump administration wants a weaker US dollar to support the manufacturing sector by improving external competitiveness.”
The Federal Reserve will announce its interest rate decision later on Wednesday. There are very strong expectations that the central bank will maintain interest rates at 3.75%, although there may be dissenters backing a further cut.
The comments and guidance from Chair Powell will be watched closely. Equally, the Administration reaction will be an important element.
According to MUFG; “We expect the Fed to indicate tonight that they are not in a rush to cut rates as soon as the following FOMC meeting in March but are likely to stick to plans for further easing this year.”
ING commented; “Our take is that a Fed shifting to a pause could provide the dollar with some support. However, were any rally to prove weak and the dollar to end up lower on the day, even if short-dated US yields rose, then it would signal very bearish dollar momentum.”
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TAGS: Pound Dollar Forecasts
