empty
 
 

Forex Analysis & Reviews: The pound is afraid of drowning, but it aims to move up and continues its journey
time 30.11.2022 08:58 AM
time Relevance up to, 05.12.2022 08:55 AM

This image is no longer relevant

The British currency is experiencing notable volatility this week, moving back and forth - from a tangible rise to a moderate decline. According to analysts, sterling has a chance to climb higher and settle on the top, but such success will be short-lived

The pound started the week with growth, but later on it partially gave up its positions. On Tuesday, November 29, the sterling noticeably strengthened against the dollar, which remains a sought-after safe haven asset for investors. Markets are currently on edge, fearing a prolonged recession in Britain. According to PMI data, economic activity in the country remains at its lowest level in 21 months, but experts are seeing some improvement.

In this backdrop, GBP/USD is experiencing significant volatility, shifting from a brief rise to a further decline. At the beginning of the week, the pair gained 45%, reaching 1.2014. Note that last week the GBP/USD pair soared to a three-month high of 1.2153. However, later on the pair lost its gains and slipped from the highs it reached. On Tuesday, November 29, the pair rolled back below 1.1950. On Wednesday morning, November 30, GBP/USD regained some of its positions and traded near 1.1957.

This image is no longer relevant

According to economists at ING bank, the pound will remain vulnerable until the end of 2022. Falling below 1.2000 was preceded by a noticeable strengthening of the dollar. As a result, the greenback rose substantially and the pound slumped, fearing a bleak economic outlook for Britain.

The economic uncertainty in the country is fueled by the actions of the Monetary Policy Committee of the Bank of England, which has an important decision to make. The central bank is expected to raise its key rate by 50 bps to 3.50% at its next meeting on December 15. The central bank has been raising rates since late 2021 to curb inflation and not harm the national economy. In addition, market participants are waiting for BoE Governor Andrew Bailey's speech in Parliament. It will take place in two weeks, in the middle of December.

The central bank will particularly pay attention to inflation risks, which can destabilize the British economy. According to analysts of TD Securities, they are now shifted downward. At the same time, analysts do not rule out that the BoE will continue to raise rates to 4.25%. According to preliminary projections, in December 2022 and in February 2023, the central bank will hike the rate by 50 bps, and in March next year - by 25 bpd. The realization of such a scenario will lead to achieving the final rate of 4.25%, summarized in TD Securities.

In the current situation many analysts believe that the British economy has already entered recession. Thus, economists of Danske Bank expect Great Britain's GDP to fall in the next four quarters. In this case, Danske Bank believes that the country may only experience economic growth in the fourth quarter of 2023. As a result, the unemployment rate will increase to 5%, and inflation will remain high throughout 2023.

Such a scenario would force the BoE to pursue a strategy of further rate hikes. At the same time, according to forecasts, the first reduction in the key rate will not occur before 2024. As rising inflation is increasingly hampering the British economy, the central bank has to be decisive about tightening monetary policy. However, according to Catherine Mann of the BoE's Monetary Policy Committee (MPC), the central bank "risks losing the battle to bring inflation down to the 2% target. According to Mann, now inflation can settle at 4% and stay in this range for a long time. At the same time, market participants expect the BoE to raise rates from 5.5% to the final level of 5.75% by mid-2023.

Thus, the role of sterling as a reserve currency is increasing, although further positive dynamics of GBP is doubtful. Recall that the pound accounts for 5% of global foreign exchange reserves, while the UK accounts for only 3% of global GDP. However, according to Natixis analysts, the role of GBP as a reserve currency remains in jeopardy because of the economic problems, declining investment attractiveness of the United Kingdom and deteriorating economic growth in the country.

Larisa Kolesnikova,
Analytical expert of InstaForex
© 2007-2023

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.

  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $1000 more!
    In February we raffle $1000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

USD/JPY at crossroads

Today is a very important day for the US currency. The Federal Reserve is expected to hike interest rates once again and determine the trajectory of its further tightening. This

Аlena Ivannitskaya 09:03 2023-02-01 UTC+2

US stocks closed higher, Dow Jones up 1.09%

At the close on the New York Stock Exchange, the Dow Jones rose 1.09%, the S&P 500 index rose 1.46%, the NASDAQ Composite index rose 1.67%. The leading performer among

Thomas Frank 04:36 2023-02-01 UTC+2

The euro is at a loss: is it in danger of falling like the USD?

The euro is steady in an uptrend, but from time to time it stumbles and fails. At the moment, the euro's efforts are rewarded by its leading position against

Larisa Kolesnikova 08:18 2023-01-31 UTC+2

USD/JPY: US dollar latches on Fed rate increase expectations

The US dollar tries to take advantage of the upcoming interest rate hike in the US. On Monday, USD/JPY rose by 0.7% and hit the high of 130.5. The current

Аlena Ivannitskaya 08:07 2023-01-31 UTC+2

EUR/USD: the dollar is cautious as it seeks ways to rise, but the euro is stubborn

The U.S. currency occasionally tries to rise and secure the upward momentum, but usually those efforts are blocked by the euro's persistence. For several weeks, the euro, taking advantage

Larisa Kolesnikova 10:55 2023-01-30 UTC+2

US stock market closes higher, Dow Jones gains 0.08%

At the close of the New York Stock Exchange, the Dow Jones rose 0.08%, the S&P 500 rose 0.25%, and the NASDAQ Composite rose 0.95%. The leading performer among

Thomas Frank 04:05 2023-01-30 UTC+2

European markets closes the week with growth

Major Western European indexes were trading higher on Friday after falling the day before. European markets advanced after a spectacular rise in US and Asian stock markets. Mining stocks rallied

Irina Maksimova 00:45 2023-01-29 UTC+2

The dollar is swirling in a cycle of new numbers. The Fed has the last word.

Market sentiment is mixed, with traders trying to catch the most accurate signal coming from U.S. data. While people are almost certain that the Federal Reserve will be less aggressive

Anna Zotova 00:45 2023-01-29 UTC+2

Second straight day of gains for Asian markets as uptrend continues

Major Asian indexes continued to rise on Friday, though the upside movement was not as strong as it was yesterday. In Japan, the Nikkei 225 inched up by only 0.05%

15:53 2023-01-27 UTC+2

Oil prices edge up, and Russia transfers record volumes on high seas

Oil is steadily rising in trading on Thursday amid expectations of increased demand. The easing of some quarantine restrictions in China promises the market a recovery in consumption this year

Natalia Andreeva 22:52 2023-01-26 UTC+2
Can't speak right now?
Ask your question in the chat.