This column last looked at the pound versus the US dollar (GBP/USD) exchange rate on 8 January and some of the levels we focused on are starting to come into play, so it is time to revisit the medium term outlook.

The second half of last year saw an impressive decline - the pound slipped from 1.72 in July to briefly below 1.50 in January this year. As mentioned back then, when faced with a significant move in any market it is possible to get a little carried away and expect that trend to just continue. But when we have seen GBP/USD as low as 1.48/1.50 over the past couple of years, the slide has stopped as the pound has been judged as too weak.

(Click on chart to enlarge)

It should be an interesting few months to come for our home currency - there is of course a general election coming up, but markets do not seem to be expecting too much impact. There looks to be at least a 75% chance that the UK will end up with a coalition government once more. Despite everyone’s fears the first time around, no major damage was done to the pound as an immediate result of this. Economically, there are some concerns over a slowdown in the UK recovery, with the service sector showing signs of running out of momentum - January saw the slowest rate of growth for a year and a half. And the latest figures saw the UK trade deficit at its widest since 2010, worse than economists were expecting. With the eurozone such an important trading partner for the UK, it would be optimistic to expect this data to start perking up in the short term.

But from a value point of view, we could well see the start of a turn for the pound versus the US dollar from current levels. The support level to watch is the previously mentioned 1.48 mark - a break downwards through here would come as quite a shock and could spark some knee-jerk selling of the pound. On the upside if GBP/USD starts trading once again around the 1.56 mark, it could lead many to feel that the decline has started to run out of steam and stronger days for the pound lie ahead.