The continuation of the strength of the US dollar since the reaction to the recent US jobs figures supported the bear's control over the direction of the GBP/USD currency pair. Losses extended past the 1.2527 support level, the lowest for the currency pair in three months. This is before settling around the 1.2566 level at the beginning of today's session on Wednesday. The US dollar is still the strongest in the forex currency market with expectations of an increase in the American interest rate.
GBP/USD Expectations in the coming days:
Barclays Bank says in a new review of its forecasts that it has become "less optimistic" about the prospects for the pound sterling, especially against the euro, the dollar and the Swiss franc. The call from the UK's main lender and investment bank comes at the end of the Northern Hemisphere holiday season in August and, if correct, suggests that the British currency's strong performance in 2023 is about to fade. In this regard, says Barclays Bank analyst Themistocles Viotakis, who says that consumer demand seems to be fading and that the labor market may finally slow down: "We have become less optimistic about the sterling pound." He added by saying "while steady wage growth and inflation indicate significant support for a longer period of time, there is now less room for further outperformance against the euro or the US dollar."
At the start of September, the pound sterling remained one of the best performing major currencies in the G10 foreign exchange space, competing closely with the Swiss franc for the top performing shares. This was the case for the remaining period of 2023 and the bullish position taken by the analysts at Barclays bank during the last months proved it. Barclays analysts were bullish on sterling and took up the currency's outperformance in their strategic guidance to clients, giving the bank's analysts more credence in suggesting that the tide may be turning in sterling's outperformance.
However, Barclays forecasts suggest that there is unlikely to be a major collapse in sterling values. They have the euro to pound exchange rate at 0.86 at the end of 2023, and 0.87 at the end of the first quarter of 2024, and is expected to continue until the end of the third quarter of 2024. This translates to a stable exchange rate of the pound against the euro at 1.1630 and 1.15.
For the pound to dollar exchange rate GBP/USD, the forecast file is 1.26, 1.24, 1.25, and 1.26 for the end of 2023, the end of the first quarter, the end of the second quarter, and the end of the third quarter of 2024, respectively. Looking at the other expected adjustments made by Barclays, analysts see lower expectations for the EUR/USD exchange rate and are now looking at a somewhat defined range between 1.08 and 1.10.
Anything beyond that range is considered unsustainable in the absence of any major surprises.
The reasons for the easing of enthusiasm towards the US dollar include the significant tightening in US financial conditions due to the rise in real interest rates, which would affect economic activity. It is also noted that the positioning represents a headwind as long US dollar long positions are likely to be rebuilt at recent highs. The Barclays analyst added: "The recent rise of the dollar led to a large correction in favor of the dollar, indicating that part of the recent strength may have had some technical aspects."
Despite the big challenges, analysts still see a path for the strength of the Japanese yen (albeit more heavily weighted, as it faces headwinds in the near term from the yen carry trades), mainly to reflect the risks surrounding the slowdown in global inflation, and the rise Interest rates will eventually be set by the Bank of Japan next year.
Today's sterling vs. dollar expectations:
- According to the performance on the daily chart below, the general trend of the GBP/USD currency pair is still downward.
- Its recent losses move the technical indicators without exception towards strong saturation levels with selling and breaking the 1.2480 support.
- If the strength of the US dollar continues the sterling does not receive a positive wound from the indicators to tighten the Bank of England.
There will not be a first reversal of the trend without returning to the 1.2830 resistance area, which will support the next stronger upward move to 1.3000. The currency pair will be affected today by the reaction from the hearing to the Bank of England's monetary policy report and then the reading of the US Services ISM Purchasing Managers' Index.
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