When bad forecasts do not materialize, currency has every chance to grow. This applies to both the euro and the pound. Recession may not be too deep and thus will not mean a fall of GBPUSD. Let’s discuss it and make a business plan.
Weekly fundamental forecast for pound sterling
Be prepared for the worst, because the best requires no preparations. Why is the pound growing if the British economy has already entered recession, has not recovered from the pandemic in contrast to other G7 economies, and the Bank of England has delayed raising interest rates? The thing is, the slightest positive can inspire GBPUSD bulls when the market feels pessimistic.
Everyone was talking about Britain’s economic problems. The BoE was the first G10 central bank to predict a recession. A recession that would last five quarters in a row! In addition to Brexit, the pandemic and the energy crisis, the British Chambers of Commerce mentioned one more problem – turmoil in the middle of the Liz Truss government’s mini-budget. According to the BCC, a storm in financial markets was not harmless for the economy, which now has to adapt to Rishi Sunak’s higher taxes. As a result, GDP is expected to decrease by 0.9% in October-December, and the recession – will deepen in Q1-Q3 in 2023.
If the economy is feeling so bad, why is sterling feeling so good? Because reality can be very different from expectations. The latest statistics for the UK are more optimistic than those for the US, the eurozone or China, the Citi Economic Surprise Index shows. So, the GBPUSD bulls feel enthusiasm.
Economic surprise index
Is the BoE’s monetary policy adversarial or a boost for the pound? Hard to say. In contrast to the Fed and the ECB, there is no consensus among market forecasts for the BoE rate. When the REPO rate rose to 3%, the derivatives expected its peak at 4.75%, but it fell to 4.6% in early December. However, the highest borrowing costs were at 4.25%, Reuters experts estimate. HSBC, Wells Fargo, Royal Bank of Canada, and Julius Baer see them at 3.75%.
I think the reason for this is a split in the Monetary Policy Committee. Some members are desperate to fight inflation, while others are worried about the economy. As a result, monetary policy becomes uncertain, which can support or weaken the pound. It is currently supporting the pound as the Fed’s monetary tightening is being eased.
However, Reuters believes the GBPUSD will depreciate 5% in three months and will be traded at 1.16.
Forecast for GBPUSD
Weekly business plan for GBPUSD
That can only happen if US inflation unexpectedly soars. But if U.S. consumer prices continue to slow, traders will have an opportunity to build longs GBPUSD opened at 1.215. Slower CPI growth rates and a moderate increase in the FOMC’s forecasts for the federal funds rate will increase the risk of the accumulation of the pound to $ 1.243 and $ 1.253.
GBPUSD price chart in real time mode
The content of this article reflects the opinion of the author and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for information purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.