Pound to US Dollar Exchange Rate Forecast: The Pound’s bullish momentum has taken it higher by around 2.4 cents against the US Dollar

The Pound's bullish momentum has taken it higher by around 2.4 cents against the US Dollar.The Pound’s bullish momentum has taken it higher by around 2.4 cents against the US Dollar.

Foreign Currency Market Update – GBP / USD Update

The Pound’s bullish momentum has taken it higher by around 2.4 cents against the US Dollar over the past week. Renewed optimism in the UK economy combined with the Federal Reserve’s aggressive stimulus measures led to GBP/USD posting 5 days of consecutive improvements last week, and the rate currently stands just below a 4-month high of 1.6255.

In the build-up to Thursday’s announcement from the Fed, the Pound gradually inched up each day as markets grew impatient for further stimulus. On Monday US Consumer Credit declined for the first time in a year and the UK House Prices figure performed better than expected. On Tuesday the Pound grew by 0.7 cents as the UK Trade Balance grew closer to equilibrium and Moody’s credit rating agency commented on the fragility of the USA’s triple-A credit rating with reference to the fabled ‘fiscal cliff’ of tax hikes and spending cuts in the new year.

Sterling’s strong surges continued on Wednesday as the UK Claimant Count decreased by -15,000, relieving some of the burden on the British tax payer and raising the prospect of a return to UK growth in the third quarter. The German Constitutional Court’s decision to ratify the European Stability Mechanism, which supports the European Central Bank’s latest bond-buying programme improved global risk sentiment and also contributed to the Pound’s 0.3 cent gains against the US Dollar.

On Thursday markets’ wildest dreams were fulfilled as the Federal Reserve not only announced a return to their easing cycle, they did so with an unlimited scope and without an explicit end date. Fed Chairman Ben Bernanke simply stated that the US Central Bank will carry on buying $40 billion worth of mortgage-backed securities per month until the labour market is seen to have made a substantial and sustained recovery.

With the full might of the world’s most powerful Central Bank behind the USA’s revival hopes market sentiment swung even further into risk-on territory and subsequently the Pound to US Dollar exchange rate improved by an initial 0.6 cents on Thursday and a further 1 cent on Friday. During Friday afternoon the Pound stretched the ‘Greenback’ to a fresh 4-month high of 1.6255.

In terms of economic data in the week ahead, the UK Consumer Price Index figures, the bank of England minutes report, and the UK Retail Sales figures are unlikely to induce much market-moving volatility. US ecostats are anticipated to be of a similarly secondary nature as the primary drive behind GBP/USD will come from upward trend momentum related to Central Bank stimulus efforts.

The Pound appears to be heading for the dizzying heights of April’s 5-month 1.6306 high. If improvements in the UK Industrial and construction sectors prove sufficient enough to send Sterling through key resistance levels at 1.6300, then the Fed’s inflationary QE3 measures could give the UK currency the necessary push to challenge rates not seen for over a year.

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

 

 

 

 

 

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