The British Pound (GBP) is a major currency pair in the foreign exchange market and is the subject of much research and analysis. The currency’s volatility and liquidity, two important considerations for traders, make GBP pairings particularly appealing.
During its 1,200-year existence, the British Pound has amassed a solid price history, rising to become one of the world’s strongest currencies. With Bretton Woods in effect throughout the 1940s, the government depreciated the Pound by 30%, putting the exchange rate to USD2.80 on September 19, 1949. When the Bretton Woods system failed, the Free-Floating method caused the British Pound to climb to $2.65 per dollar. The Pound traded at USD1.03 by 1980 before increasing to USD1.70 in December 1989. From the 1990s, the GBP has consistently outperformed the USD and EUR until recent economic crises caused it to lose ground.
Investors seeking price forecasts when trading forex must analyse the variables driving demand and supply and investor confidence in the British Pound. This article delves into some of these elements and the opinions and forecasts of currency experts regarding the GBP in 2023.
Review
After falling more than 2% against the US dollar in February—its worst monthly slide since the over 4% plunge in September to record lows—the British Pound has stayed around $1.20 at the beginning of March. Investors well received the deal between Britain and the EU on post-Brexit commerce because it would facilitate trade between Northern Ireland and Britain and give legislators a larger voice in the rules and regulations followed by Brussels. The Bank of England is expected to raise rates by 25 basis points (bps) this month before stopping the tightening cycle. Last month, MPC member Jonathan Haskel warned that the Bank of England needs to be careful about the risk of high inflation. In the same meeting, MPC member Silvana Tenreyro said that rates were already too high and that she might vote for a cut in future meetings. The US economy has been doing well, so many are betting the Fed will keep interest rates high for a while.
GBP/USD FUNDAMENTAL BACKDROP
On Friday, the pound received a boost from positive UK services data PMI and increased appetite for risk after better-than-expected China PMI statistics. Risk assets, such as the British pound, are doing well as the Chinese re-opens narrative gains momentum again. Although the Bank of England (BoE) has been taking the side of caution regarding its forward guidance, the United States seems to be staying with the hawkish narrative, which will be the dominant topic for the next week. With the Fed’s forward guidance remaining mostly unchanged, however, there has been a gradual reduction in the market’s response to central bank speakers. This has increased the importance of economic statistics, but next week’s speech by Fed Chair Jerome Powell should get greater interest than previous speeches by other Fed officials.
After consistently strong labour statistics, the United States’ attention will shift to Non-Farm Payroll (NFP) data. This is in addition to the tough measures the Federal Reserve took (largely priced in). With expectations built into the upside, any data shortfall should result in a bullish move for the pound.
Positivity around Brexit
The trade conflicts with Northern Ireland have finally been handled. Still, the most unexpected part of this agreement was how well-disposed several influential Brexit supporters were, who hailed the new concessions. While this is good news for the British economy, the pound’s value will continue to be set by the Bank of England. Short-term support for the pound versus the dollar may result from the Brexit agreement, but the US economy and the Federal Reserve will provide the more important data. Governor of the Bank of England (BoE) Andrew Bailey has recently expressed vague views to provide some leeway in the coming months and avoid causing market panic.
Technical analysis
Trading Economics’ global macro models and experts’ forecasts show that the British pound will close the quarter trading at 1.18.
UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang predict that the GBP/USD exchange rate will range between 1.1925 to 1.2120 shortly. The GBP has been trading higher than experts predicted. While the comeback has not significantly strengthened upward momentum, GBP might rise above 1.2070. It’s unlikely that the 1.2120 level of resistance will be challenged. If prices drop below 1.1985, it will show that the recent moderate upward pressure has dissipated.
Although negative momentum is building, GBP needs to breach 1.1900 before a persistent slide is conceivable. The likelihood of GBP breaching 1.1900 will stay intact as long as 1.2045 is not crossed during the next few days. In NY trading, the pound climbed as high as 1.2049. The breaking through of strong resistance suggests that the downward momentum has slowed. It’s more probable that GBP will continue to stabilise between 1.1925 and 1.2120 rather than decline.
