Pound to US Dollar Exchange Rate Forecast – The Pound rallied to its highest level in 7-months against the US Dollar on Monday reaching 1.6302

By on May 1st, 2012.
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Pound to US Dollar Exchange Rate Forecast - The Pound rallied to its highest level in 7-months against the US Dollar on Monday reaching 1.6302Looking ahead and the Pound to US Dollar exchange rate will largely be dictated by the threat of central bank intervention this week.

Foreign Currency Market Update – GBP / USD Update

The Pound rallied to its highest level in 7-months against the US Dollar on Monday reaching 1.6302. Sterling seems to have shrugged off last week’s poor GDP report and is continuing to post gains against the Buck.

The Pound initially fell by almost a cent as the Office for National Statistics announced that the UK economy shrank by 0.2% in the first three months of 2012. This came as a big surprise considering the raft of positive UK ecostats that had preceded the GDP figures. However the knee-jerk reaction to sell Sterling was swiftly rectified and GBP/USD continued its bullish ascendency.

The US Dollar was let down by a 4.2% decline in Durable Goods Orders, and a soft press conference from Federal Reserve Chairman Ben Bernanke who left the door open to more central bank stimulus. Bernanke said that he is prepared to “do more” to boost the US economy, which spooked investors and allowed the Pound to maintain its offensive run. Sterling received its next boost as the US annualised GDP figures were downgraded from 2.5% to 2.2% last Friday, which sent GBP/USD through a key resistance level at 1.6170, and gave rise to a strong weekend rally.

The Pound seemed to be headed towards the next major technical barrier at 1.6450, but a weak Manufacturing PMI report from the UK halted Sterling in its tracks. The Manufacturing index fell from 51.9 in March to just 50.5 in April which cast doubts over the UK’s ability to return to growth in Q2 as Eurozone demand softened significantly. It also reintroduced the possibility of further quantitative easing in May, as the Bank of England may feel it necessary to increase their support for the struggling UK economy.

Looking ahead and the Pound to US Dollar exchange rate will largely be dictated by the threat of central bank intervention this week. Sterling could surrender some of its recent gains if April’s Construction and Services PMI’s prove weak enough to muster up further support from the Bank of England. On the other hand, Sterling surges could continue if the US ISM Manufacturing report falls as far as 52.6 which would likely call the Fed into action.

Heads Up

Summary of major upcoming data releases that we think may move the market.

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