Conflicting outlooks

The view on where the pound will go from here is mixed. Some see room for continuing gains vs. the U.S. dollar, while others believe the British currency is overvalued at current levels. Guest predicts the most bullish outlook for the pound, with calls for a near-term move toward the $1.95 $2.00 range.

Forex.com’s Dolan also sees potential for a near-term up move — a test of $1.9200-$1.9250 — with a move through that ceiling opening the door for a run as high as $1.94-$1.95. “The pound should resume its path of strength,” Dolan says.

He says U.S.-dollar weakness should play into further strength for the pound, with the U.S. economy slowing and the U.S. Federal Reserve likely on hold through 2006.

Others, however, are pessimistic about the pound. Analysts at Credit Suisse said the pound is more than two standard deviations rich to their fair value estimate and they are expecting some correction. The Aug. 25 edition of Credit Suisse’s Global Economy This Week set a three-month target of 1.855 and a 12-month target of 1.765.

Tim Mazanec, senior FX strategist at Investor’s Bank & Trust, was also in the bearish camp.

“I’d sell any rallies outright,” he says. “I think it is toppish around $1.90.”

He sees potential for a slowing UK housing market to weigh on consumer spending, which could ultimately become negative for the British growth outlook. Heading into late August, analysts pointed to $1.87 as a notable support level and $1.90 followed by $1.9150 as resistance levels.