Pound v Dollar Exchange Rates: Strong US NFP Data Ends Sterling Rally

Bank of England to keep GBP on front-foot

New forecasts concerning the pound to dollar exchange rate (GBP/USD) confirms the end of declines may have finally taken place.

However, the potential for further gains in the USD exchange rate complex remains a distinct possibility as we see in this article.

At the time of writing the pound to dollar rate is trading back below five week bests just above the 1.53 market – the levels nevertheless represents a solid comeback for a currency pair that was testing the critical support zone of 1.50 just a few days previously.

According to technical analyst Karen Jones at Commerzbank:

“GBP/USD continues to base and has eroded the 7 month downtrend at 1.5312.

“On the intraday chart the Elliott wave count is more positive and we will go with the break higher for now and adopt a more positive stance near term. The market will stay bid above 1.5165/43 (minor Fibonacci and 20 day moving average).”

Commerzbank’s current trade on GBP/USD recommends small shorts from 1.5300 stopped 1.5320. The bank’s recommended trade suggests attempting small longs on dips to 1.5268, add 1.5175, stop 1.5140. 

US NFP Halt Sterling Recovery

The release of the January non-farm payroll data in the first week of February saw the USD find its feet once more.

Joe Manimbo at Western Union comments: 

"The dollar caught a bounce after U.S. job growth proved stronger than expected, putting more firming on the table the specter of a U.S. interest rate hike around midyear. America cranked out 257,000 nonfarm payrolls in January, more than forecasts.

"Unemployment unexpectedly edged up a tick to 5.7% but wages rose 0.5%. The solid report came with spectacular revisions showing a strong burst of hiring as 2014 drew to a close."

US Dollar Exchange Rate Outlook

The pound sterling remains favoured by traders at the present time owing to the policies currently being maintained at the Bank of England.

The policy of doing nothing to interest rates makes the Bank stand out as an outright hawk in a world of unprecedented central bank easing.

Westpac have counted 16 central banks as having cut rates or introduced some form of monetary easing thus far in 2015.

The US Federal Reserve and Bank of England’s policy stance therefore places both the GBP and USD in the bullish camp.

Richard Franulovich at Westpac has told clients he maintains a bullish bias towards the dollar exchange rate complex:

“A combination of diminished Greek worries, less than stellar US data lately (Q4 GDP, ECI, pending home sales, manufacturing ISM) and higher oil prices have taken the wind out of the USD’s sails.

“The USD index shouldn’t ready buyers into the low 93s however and the uptrend will resume before long.

“The poor reaction of energy prices to the China RRR cut suggests still poor underlying fundamentals while US refinery strike action is only a temporary boost to prices.

“The Greek drama faces at least a couple more combative iterations before it is settled as well. In short we stick with a constructive USD bias on a monthly horizon. One risk to watch – the cooling in US data combined with less weak Eurozone data arguably has further to.”