The FED and the Bank of England’s monetary policies, economic recessions, the market sentiment for both currencies and global economic factors are major catalysts of the GBP/USD price chart.
Although the Pound Sterling remains stable and is likely to remain throughout 2023, the USD will see a higher demand from investors which means negative pressure on the Pound Sterling.
The GBP/USD Performance in 2023
The GBP/USD pair closed at $1.267 on Thursday, August 31st, 2023.
The YTD gains for the pair stand at 4,89%, slightly at par with the previous 12 months’ gains. Although the pair has lost some value in the last month by around 1,17%.
The US Dollar Index (DXY) which is a yardstick of the US Dollar’s performance against the top six currencies of the world stands at 103,59.
The current mark of the DXY is significantly lower than the 52 weeks high point of 114.78. The YTD for the index also remains negative at -0,27% so far.
Overall, both currencies faced similar pressure points including interest rate hikes, fears of economic recessions, unemployment rates, and staggeringly higher inflation rates in both economies.
The global factors affecting the pair included the prolonged Russian-Ukraine war, the resurgence of COVID-19 cases in China, political instability, and supply chain disruptions across the globe.
Which Factors Will Influence the USD Movement?
The most influential factor affecting the US Dollar is the FED’s interest rate policy. The FED has consistently increased the interest rate to curb inflation in the country.
The US Dollar saw a resilient recovery in 2022 after a dismal 2021 performance in a pandemic-hit economy and disrupted global economies.
The US Dollar Index (DXY) is hovering around the 102-point mark throughout this year which is significantly lower than the last year’s peak of 114.78 mark.
The short-term performance of the USD has been stable despite major factors like the US credit rating cut by Fitch from AAA to AA+ and signs of a slowing job market.
Similarly, investors anticipate a halt in the interest rate hikes from the FED, the job market showing resilience, and the renewed calls for investing in the dollar amidst fears of mild economic recession have been some of the positive signs for the US Dollar.
On the other hand, a growing number of calls for De-Dollarization, persistent inflation, and some global factors may keep the Dollar demand lower in the coming months.
Which Factors Will Influence the GBP Movement?
The Bank of England’s (BoE) monetary policy remains the key factor affecting the GBP movement.
A long stream of 14 continuous interest rate hikes hasn’t helped the GBP in the last year or so at all. Although an interest rate hike from the BOE is generally favorable to the Pound Sterling.
The inflation rate in the UK remains significantly higher than the BOE’s target rate of 2%, and the economic indicators are far from ideal, says the forex broker expert Edward Kendy from BestOnlineForexBroker.com™.
On the other hand, the US Dollar has had an action-packed last month or so. Experts are predicting that the FED’s next meeting in September may not produce another interest rate hike.
So, the GBP/USD pair is likely to trade around the psychological mark of 102 in the short term.
The BOE’s monetary policy, economic data, and the market sentiment about the Pound Sterling’s performance are major factors that could shape the currency’s performance in the coming months.
The Pound Sterling remains stable in the short term but a resilient USD and potential calls for a safe-haven asset (USD) means a stronger Dollar as compared to the GBP in the mid to long term though.
What are the Forecasts for the GBP/USD Pair?
Investors are looking for more liquid and safe assets like the US Dollar. A consistent stream of interest rate hikes may come to an end but if the inflation rates don’t come down, we may see the trend again.
The current credit rating downgrade from Fitch may also prove to be another positive sign for the USD. Some experts predict that it may trigger a long-term positive rally for the USD.
On the other hand, the GBP is fairly stable in the short term too. The GBP/USD pair’s performance is mostly dependent on the monetary policies of the FED and the BOE.
With the private job data coming in the next few days, the USD may remain under pressure and the GBP/USD is likely to touch the psychological barrier of 1.2800.
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