empty
 
 

Forex Analysis & Reviews: GBP/USD. Pound and parity. Without a catch
time 21.09.2022 11:28 PM
time Relevance up to, 22.09.2022 08:07 PM

This image is no longer relevant

The euro has reached parity with the dollar and now the question of the parity of the pound is being discussed more and more often. How realistic is this and when was the last time the pound traded at the same level with the US dollar?

In fact, the pound has never traded in parity with the dollar. Meanwhile, throughout the 1800s, it was approximately in the ratio of 5 to 1. The pound has been declining against the dollar over the past century. A close convergence of the two currencies occurred in 1985, when the GBP/USD exchange rate briefly fell below 1.1000.

This image is no longer relevant

However, everything happens for the first time sometime. Judging by how the British currency is systematically declining, a historical drop in the dollar by zeros or an approach to this level may well occur. In addition, events in the world are unfolding in such a way that it is very difficult to predict or exclude something.

So, what should I pay attention to? To begin with, on the history. It is proved that history does not repeat itself, but rhymes. A certain role model for the current British Prime Minister Liz Truss is Margaret Thatcher. When she was in power, both Britain and the United States faced increased inflation in 1985, although Americans were able to understand price pressures before their colonial overseer, which is what traders and politicians expect this time.

In addition, oil prices have stabilized after an explosive rise to triple digits, which led to rationing and calls for price restrictions.

Next, you should pay attention to the factors and their relationship.

What can bring the pound to parity?

The US looks more promising and it is the Brits who are at a higher risk of facing a severe stagflationary period in the next few quarters.

Recently, the British central bank predicted a prolonged recession for the country and a peak in inflation above 13%. Curiously, the forecast for price increases was made before the government announced a plan to limit energy prices for households. This factor may well bring peak inflation closer to 11%, but it is still higher than initially expected.

Price pressures may be eased, but the energy cap scheme risks further increasing England's current account deficit. It is worth noting that the current account measures the total value of goods and services that a country imports relative to the total value of goods and services that it exports.

After consolidation in the range of 1% to 5% of GDP, the UK's current account jumped to 8% in the first quarter. If gas continues to rise in price amid Russia's termination of supplies to Europe, the cost of the energy subsidy scheme is likely to jump. The government's balance sheet will be subject to large losses, and the pound will decline sharply.

The Thorny Path to Parity

The parity of the pound, although not so obvious at the moment, is an event, but traders are considering this option. According to NatWest, current option prices suggest a 25% probability that the GBP/USD pair will reach the 1.0000 mark over the next 12 months. Similar calculations were made by Bloomberg, where this probability is approaching 20%.

If you look at the technical picture, the GBP/USD quote is currently testing Covid lows near 1.1300, the last level of the previous support before 1985, closer to 1.0500.

According to experts, a break below the lows of 1985 can indeed lead to parity for the first time in the more than 200-year history of the GBP/USD exchange rate.

The Federal Reserve and the Dollar

The Fed announces its decision on monetary policy on Wednesday. Expectations of a rate hike of 100 bps were exaggerated, the US central bank did not panic enough to resort to such a sharp tightening.

By the way, a year ago, and it seems like an eternity ago, traders laid down the probability of a rate increase by only 50 bps.

After Fed Chairman Jerome Powell's hawkish speech in Jackson Hole, a solid NFP report and much hotter inflation, the market completely discarded any possibility of a rate hike of just 50 bps.

The Fed eventually raised its target interest rate according to forecasts.

"The Committee is firmly committed to returning inflation to the 2% target," the Fed said in a statement announcing a third consecutive rate hike of 75 bps, which is significantly higher than the quarter percentage point increase typical for the US central bank.

This image is no longer relevant

It also became known that at the upcoming two meetings the rate will be raised by 1.25 bps both times. Thus, it will rise to 4.40% by the end of this year, before being raised to 4.60% in 2023.

The reduction of rates is not envisaged until 2024.

In the long term, the US dollar remains the most attractive currency. It is not surprising that the dollar index has recently continued to find support further and higher, fueling bull sentiment.

After the announcement of the rate decision, the dollar went above 111.00. A more hawkish breakthrough means that the index may aim for 112.00 or higher in October.

This is a bad signal for the pound.

Natalya Andreeva,
Chuyên gia phân tích của InstaForex
© 2007-2023
GBPUSD
Great Britain Pound vs US Dollar
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Start trade
Start trade

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.
    THAM GIA CUỘC THI
  • Tiền gửi lần truy cập
    Ký quỹ tài khoản của bạn với $3000 và nhận được $1000 nhiều hơn!
    Trong Tháng 02 chúng tôi xổ $1000 trong chiến dịch Chancy Deposit!
    Có được một cơ hội giành chiến thắng bằng việc ký quỹ $3000 vào một tài khoản giao dịch. Đáp ứng được điều kiện này, bạn trở thành một người tham gia chiến dịch.
    THAM GIA CUỘC THI
  • Giao dịch khôn ngoan, thành công
    Nạp tiền vào tài khoản của bạn với ít nhất $ 500, đăng ký cuộc thi và có cơ hội giành được các thiết bị di động.
    THAM GIA CUỘC THI
  • 100% tiền thưởng
    Cơ hội duy nhất của bạn để nhận 100% tiền thưởng khi gửi tiền
    NHẬN THƯỞNG
  • 55% Tiền thưởng
    Đăng ký tiền thưởng 55% cho mỗi lần gửi tiền của bạn
    NHẬN THƯỞNG
  • 30% tiền thưởng
    Nhận 30% tiền thưởng mỗi khi bạn nạp tiền vào tài khoản của mình
    NHẬN THƯỞNG

Recommended Stories

The currency market is in the mood to sell the pound

The British pound is feeling very uncertain against the euro and the dollar, and especially after the release of unexpectedly strong data from the U.S. Assets, which are very risk

Natalia Andreeva 22:56 2023-02-06 UTC+2

European markets opens the week lower

On Monday, major Western European indexes were down by 1% and more amid the general decline of the world stock markets. In this case, new macro data on the region

Irina Maksimova 22:56 2023-02-06 UTC+2

The dollar held firm after good U.S. jobs data, the lira hit a record low

The dollar held firm after good U.S. jobs data, the lira hit a record low The dollar held firm against the euro on Monday as traders believe the U.S. Federal

22:56 2023-02-06 UTC+2

Asia's major stock indices trading mainly in red

Major indices of the Asian region are trading in the negative territory today, with a decline of up to 2.2%. Australia's S&P/ASX 200 sank less than other indices, by just

15:05 2023-02-06 UTC+2

Gold advances amid upsurge in precious metal market

Gold began this week in positive territory, recouping the losses it had sustained at the end of last week. Early on Monday, the precious metal gained 1% and rose

Maria Shablon 14:09 2023-02-06 UTC+2

EUR/USD: euro seeks growth opportunities as US dollar remains under pressure from statistic data

The US currency began this week on the back foot. USD retreated significantly after an earlier upsurge triggered by US labor market data. The euro took advantage of the situation

Larisa Kolesnikova 08:33 2023-02-06 UTC+2

Asian stock indices show mixed performance

The main Asian indicators are trading mixed today. Thus, the Chinese Shanghai Composite and Shenzhen Composite indices were down quite significantly by 1.37% and 1.43% respectively. The Hong Kong Hang

13:18 2023-02-03 UTC+2

US stock market closed mixed, Dow Jones down 0.11%

The US stock market closed Thursday's trading in mixed directions due to the strengthening of the technology, consumer services and industrial sectors. The market demonstrates against the backdrop of negative

Thomas Frank 04:50 2023-02-03 UTC+2

Gold at the peak of popularity: what to expect in the coming year

The weak U.S. dollar and the Federal Reserve's easing monetary policy are pushes precious metals to extend gains. And not only in the short term, but also in the long

Maria Shablon 22:59 2023-02-02 UTC+2

Asian markets extend uptrend on Thursday amid increased optimism

Asian stock indexes continued to advance on Thursday. In China, the Shanghai Composite and Shenzhen Composite gained 0.06% and 0.41%, respectively, while the Hang Seng Index in Hong Kong rose

13:33 2023-02-02 UTC+2
Không thể nói chuyện ngay bây giờ?
Đặt câu hỏi của bạn trong phần trò chuyện.