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The Pound-to-Dollar Rate's Forecast For the Week Ahead

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- GBP/USD reaches within a hair's breadth of key downside target at 1.3290

- The main release for Sterling is Manufacturing PMI survey data

- The Dollar's most important release is Non-Farm Payrolls

dollar exchange rate 1

© jcomp, Adobe Stock

The Pound-to-US Dollar rate has started the new week trading at 1.3320 on the interbank market.

It is up marginally after falling to a new low of 1.3294 at the end of the last week. This low may represent a key intermediate bottom for the pair as it is close to several target levels we highlighted in our analysis report last week.

One of the target levels is based on the length of the move prior to the trendline break (a) extrapolated lower (b) which produces a price objective at 1.3275, not far from the recent 1.3294 lows.

Another of our targets was at the level of the monthly pivot at 1.3288, since pivots often present quite tough obstacles to trending prices as traders expect the exchange rate to bounce off them which increases buying in their vicinity, increasing demand and thus lifting the exchange rate.

Therefore, overall, we see the potential for a bounce from these levels now the move down has come extremely close to hitting some key targets.

In addition, the RSI momentum indicator is deeply in oversold territory, as shown in the chart below, and this is a signal not to enter any new bearish bets on the pair.


The MACD momentum indicator on the chart below looks like it has finished its down move and may be about to turn higher - or at least does not appear to be moving lower - and this is further evidence the bearish move has lost momentum.


Whilst we see evidence of a recovery on the horizon the pair has not actually started to recover yet and so we hesitate to make an outright bullish forecast, preferring to remain neutral this week, whilst we wait to see what might happen next.

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USD - What to Watch

The Dollar has mainly risen as a result of the rest of the world (RoW) doing so badly, although rising US yields have also been a factor according to analysts.

In the week ahead these to factors may be material in deciding the currency's continued trajectory.

From a hard data perspective, the key day for the Dollar is probably Friday, June 01, is as that is when two major barometers of the US economy, Non-Farm Payrolls at 13.30 GMT, and ISM Manufacturing at 15.00 are released.

NFPs is expected to show the US economy added 185k jobs in May compared to 164k in April, but it is probably the wage data which will be more important, as it is a more direct driver of inflation and therefore interest rates - higher interest rates tend to drive up the value of the Dollar, as they attract greater inflows of foreign capital, drawn by the higher return potential.

"The market will once again focus on wage numbers. More signs of wage growth picking up will support further upside pressure on US interest rates. The consensus is for an increase in average hourly earnings of 0.2% mom and 2.7% yoy. We continue to see upside risk," says Andreas Steno Larsen, senior FX/FI strategist at Nordea Bank.

ISM Manufacturing is expected to show activity in the sector picked up to 58.0 in May from 57.3 previously.

Consumer Confidence on Tuesday at 15.00 could be another key release for the Dollar. Analysts expect a slightly pull-back to 128.0 from 128.7 previously.


GBP - What to Watch

The main release in the week ahead is probably UK Manufacturing PMI for May, out at 9.30 GMT on Friday, June 01, which is forecast to rise from 53.9 to 54.9.

The manufacturing PMI is an index score generated from survey responses of key business managers in the sector. It is a fairly reliable leading indicator of growth. A higher-than-expected result would probably push the Pound higher versus the Euro, especially if the final Eurozone Manufacturing PMI result, which is out only a half an hour earlier, continues to show a contrasting move down.

The busiest day is probably Thursday, May 31, when the Nationwide House Price Index (HPI) is scheduled for release at 7.00, followed by third-tier releases at 8.30 covering credit and lending, such as Net Lending to Individuals, Consumer Credit and Mortgage Approvals; and also M4 Money Supply (all for April).

Another significant release in the week ahead is Consumer Confidence, which is out at 23.01 on Wednesday. Experts are forecasting a slight recovery in to -8 from -9 previously. The release is often a good barometer of future trends in the economy given the disproportionate importance of consumers in the UK economy.

The British Retail Consortium's (BRC's) Shop Price Index, meanwhile is out at 23.01 on Tuesday evening.

Apart from hard data, there may be a lot of focus on Brexit as the EU summit in June to decide the next stages of the process gets nearer.

"Through the remaining four days Brexit may see a renewed focus ahead of the 28-29 June EU Leaders’ Summit. There have been some reports that talks with Brussels will begin again on Tuesday. Meanwhile, the Tory party has been put on notice for an early June return of the EU Withdrawal Bill to the House of Commons after its spell in the Lords," says Victoria Clarke, an analyst at Investec.

Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.

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