UK interest rate unlikely to increase till end 2016

US Dollar Highlights

• Sterling Dollar exchange on a downward trend

• UK interest rate unlikely to increase till end 2016

• Janet Yellen has stated that a US interest rate hike in December is a live possibility

Sterling - US Dollar (GBPUSD) FX Technical Analysis

The Sterling Dollar exchange rate has been in a clear downtrend since the beginning of June and this trend looks set to continue for the rest of the year. In November we saw a high of 1.5400 and currently the psychologically important level of 1.5000 is again being tested. UK data has on the whole been fairly positive in November as wages rose, house prices continue to rise and the forward looking PMI's all showing readings above the 50 level which denotes growth in the sector. The services PMI was particularly robust coming in at 54.9 which should point towards a solid growth figure in the fourth quarter. The Bank of England is a little more sanguine on the future path of the UK economy. The quarterly inflation report showed a lower short term inflation outlook, with inflation set to hit target slightly later than originally predicted, paving the way for even more gradual monetary tightening. Investors have now pushed back the chances of a UK rate hike until the end of 2016 as the BOE also lowered growth prospects for next year. Mr Carney has been very careful to manage expectations and it would seem that the message is finally getting through as Sterling lost significant ground after the report was released. Several members of the committee have now stated that the next move in policy is not set in stone and that there may be a case for a cut in rates which is also weighing on the Pound. We are now entering a crucial phase for the fortunes of Sterling versus the Dollar. Several members of the FOMC have made It very clear that there is now a very strong case for the Fed to raise rates for the first time since 2006. Janet Yellen has stated that a rate hike in December is a live possibility and the committee removed the key sentence citing global factors and suggested that the zero interest policy could be ended soon depended on the economic data. This month's non-farm payrolls at the end of the week will be very closely scrutinised ahead of the FOMC meeting on the 16th December. The dollar should remain supported at least into the meeting although the case for a pullback if we get confirmation is strong.

For USD Buyers

The exchange rate is bouncing ahead of 1.5000 and is also very close to the bottom of the channel which has been in place since late August. It is worth waiting to see if we see a bounce from these levels. The market is slightly over sold and it would not be a surprise if we saw a relief rally before continuing the move lower. For now I would suggest a stop loss around 1.4920 (below the channel line) hoping for a bounce back to the recent highs of 1.5300.

For USD Sellers

It's looking quite positive for dollar sellers at the moment. The trend is nicely set and a test lower looks likely. While a relief rally cannot be ruled out at this stage a break of 1.5000 could open up a test towards 1.4400. Only a break above 1.5400 ( channel top) would confound the expectation for a move lower.