We look at the factors affecting the British Pound and where should traders expect the market to move next against USD, EUR, or JPY, including some of the latest GBP price predictions from analysts.
In a year that has seen three UK Prime Ministers, and four Chancellors, it is fair to say that 2022 has been a year to forget for the Pound. The currency has been among the worst-performing currencies in the G10 amid a war in Europe, an energy crisis, double-digit inflation, and political instability. What’s more, the pound fell to a record low against the USD in September (the worst month for GBP markets in almost four decades, -15%), hitting 1.0350 after the Truss administration announced a series of tax cuts.
However, as markets priced out the undoing of fiscal policies announced by Liz Truss, coupled with the sell-off in the greenback, the Pound has seen a late surge in Q4, recovering over 10% against the US Dollar, finishing the year at $1.20. Against the Euro, the Pound has lost 5.0% in 2022.
Will the recovery in the GBP/USD pair extend into 2023? Will the US Dollar re-accumulate safe-haven demand? Where is the Cable price headed next year?
Key British Pound (GBP) Forecast & Price Prediction Summary
- British Pound (GBP) price prediction today: Economic challenges in the UK to keep downside risks intact for Pound Sterling, according to analysts. The pound is forecast to resume its downtrend against the US Dollar.
- British Pound (GBP) price prediction 2023: The monthly chart indicates a rocky road ahead for GBP/USD in 2023. Although ING forecast GBP/USD to reach 1.28 by the end of 2023 and EUR/GBP 0.9, JP Morgan expects the pound to continue to underperform and fall to 1.15 against the US Dollar.
- British Pound (GBP) forecast for the next 5 years: BoE expects the UK to face its longest recession since the 1930s. However, this raises the question of how much negative news has been priced into the Pound.
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British Pound (GBP) Outlook 2023 - Key Drivers to Watch
It was another down year for the pound and especially GBP/USD pair but the severity of the decline was intense mainly due to the monetary policy divergence between the US Federal Reserve (Fed) and Bank of England (BoE) in the first half of 2022. Meanwhile, the failure of the United Kingdom (UK) political system accelerated the collapse of the Pound Sterling in the second half of the year.
Here are the main factors expected to drive the GBP rates in the currency market during 2023.
1. Fed and BoE policy outlooks will hold the key
Both central banks are likely to extend their rate hike trajectory into 2023, as inflation needs to be brought down on a sustained basis. That said, the BoE still remains behind the curve when compared to the Fed according to FXStreet’s GBP strategist.
Markets are still skeptical because higher rates are expected to last for a longer period of time despite the Fed projecting a slowdown in the economy while downplaying the likelihood of a recession. According to the CME FedWatch Tool, there is a less than 15% likelihood that the Fed target rate will be higher than 4.75% by the end of December 2023. The uncertainty could possibly provide a footing for a turnaround in the bearish US Dollar trend.
The US Dollar Index will likely take the biggest hit if the bond market keeps "fighting the Fed" and drives rates lower, at least in the short run. Yet, it might simply be a temporary change. The bond market's expectation of lower Treasury yields can be partially ascribed to the Fed's hawkish outlook and increased recession risks. Yet, slower global growth will have a negative effect on riskier assets, in turn causing the dollar to occasionally strengthen.
In light of the ongoing widening monetary policy contrast, the GBP/USD bounce seen in the fourth quarter of 2022 may lose steam in the early months of 2023.
2. UK’s large current account deficit
Some concerns have subsided as a result of the new UK government's austerity fiscal strategy and the stabilizing bond market, but the Pound Sterling still faces risks as the economy struggles with a sizable current account deficit. When the cost of importing gas and oil skyrocketed due to the Russia-Ukraine crisis in 2022, the former finance minister's "mini-budget" made the situation even worse.
From a record 8.3% of GDP in the first quarter of 2022 to 5.5% in the second, Britain's current account deficit decreased. Yet, of the G7 nations, it has the biggest deficit in relation to the size of its GDP.
Current account deficits make the UK less likely to be viewed as a desirable location for loans or investments from outside. Additionally, the UK government's ability to handle public finances is being called into question by the growing deficit, which could continue to harm sentiment toward the British Pound.
It's important to keep in mind that the UK political landscape could potentially be a risk to the resumed GBP/USD upward, particularly in light of the disaster that occurred during the year 2022. Yet since it's still a mystery, it's best to avoid delving too deeply into it when speculating on how the British Pound might move next year.
3. Risk trends to significantly impact GBP/USD
In 2023, the ebb and flow of risk trends will become another important factor that affects both the safe-haven US Dollar and the higher-yielding Pound Sterling. Risk sentiment is anticipated to remain weak until the effect of global tightening wanes and green shoots are clearly visible. The UK economy is currently experiencing a prolonged recession, which will likely be followed by one that is potentially shallower in the Eurozone. The United States recession is anticipated to occur in the second half of next year.
However, despite senior Chinese officials debating an economic growth target of approximately 5% for next year, investors have yet to observe convincing indicators of an economic revival in China. After the Political Bureau of the Communist Party of China Central Committee, led by Chinese President Xi Jinping, abandoned its growth target and insisted on the zero-Covid plan, this appeared to be a positive move.
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On the back of the reopening optimism, a few of the world's largest banks, including Australia & New Zealand Banking Group Ltd., Nomura Holdings Inc., and Morgan Stanley, increased their China GDP projections for 2023 to range from 4.8% to 5.4%. These institutions do not, however, completely rule out any short-term suffering as Covid cases rise, at least until the good effects of the reopening are seen in the nation's productivity and consumption.
The dynamics around oil prices and the extended Russia-Ukraine war also have an impact on the world's mood. The British Pound, a high-beta currency, is still vulnerable to negative risks due to structural weakness before it can start on a prolonged recovery path. The GBP/USD pair is expected to have a more difficult ride in 2023.
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British Pound (GBP) Price Predictions 2023 and Beyond
Here we look at the GBP/USD forecast for 2023 and beyond, including comments from highly-rated FX strategists.
JP Morgan forecast Pound to decline further during 2023
J.P. Morgan Research projects broad underperformance for the pound in 2023, with sterling/dollar forecast to reach 1.20 in March 2023, before falling to 1.18 in June 2023, to 1.16 in September 2023, and to 1.15 in December 2023.
The bank states very solid reasons to see sterling as a relative underperformer in the G10 space: stagflationary dynamics remain, growth risks from the U.S. are relevant, housing market weakness might just be getting started, consumers are struggling with negative real wage growth, the labor market is facing a lose-lose scenario.
Although the U.K. has some exposure to the drivers of better European growth, namely lower gas prices, it is also perhaps less primed to benefit from this given lower trade intensity with the continent post-Brexit.
Citibank forecast GBP to rise during 2023
In their latest British pound forecast, Citibank was bullish on GBP/USD, predicting a close around 1.17 in Q1 2023, accelerating to $1.25 in 6-12 months, and trading at $1.34 in the long-term.
While Citibank didn’t provide a direct GBP/EUR forecast, we can calculate the GBP/EUR forecast for 2023 based on the above GBP/USD forecast and the latest EUR/USD forecast for 2023, at 1.15-1.16.
The bank expected the GBP/EUR to slump to 1.08 during 2023, yet recover to 1.165 in the long term.
ING’s price prediction for GBP/USD is very bullish
Meanwhile, ING forecast GBP/USD to edge to 1.24 in Q2 2023 and 1.28 by the end of the year.
EUR/GBP is forecasted to follow a flat trend during 2023, around 0.89-0.90.
The bank expects GBP/USD to trade as high as 1.31 by the end of 2025.
More GBP price predictions
According to Trading Economics global macro models and analysts' expectations. the British Pound is forecast to trade at 1.18 by the end of Q1 2023. Looking forward, the website estimates GBP/USD to trade at 1.11 in 12 months’ time.
Another AI-based website, LongForecast, estimates GBP/USD to close in 2023 around 1.13. The website forecasted British Pound to reach a 1.22 high against the US Dollar in September.
The British Pound forecast for the next 5 years is bearish, with GBP/USD trading around the September 2022 lows, around 1.03.
The GBP/USD forecast for 2023 from algorithm-based forecaster WalletInvestor was slightly bullish, with the pair set to trade close to 1.23 in the summer and fall below 1.20 by the end of the year.
Regarding the British Pound's long-term forecast, the website is predicting that the pair could trade at 1.19 in early 2024.
Analysts have not issued a GBP/EUR forecast for 2030, yet WalletInvestor went as far as 2028, predicting the pair to start that year at 1.13.
The monthly Pound / Dollar (GBP/USD) Forecast 2023 from PandaForecast is bullish for the first half of the year when the currency pair should edge 1.24 (May). However, the algorithm-based forecaster has a price target of 1.1567 for December 2023.
GBP technical analysis & price prediction
The GBP/USD monthly chart shows the recovery momentum faltered above 1.2320, which is the 50% Fibonacci Retracement (Fibo) level of the entire downtrend, starting from the June 2021 peak of 1.4248 to the September 2022 low of 1.0339 – almost four-decade troughs.
The currency pair’s retracement from a six-month top at 1.2446 came after key technical indicators signaled a bearish pivot point. The downward-sloping 21-month Simple Moving Average (SMA) cut the mildly bearish 50-month SMA from above, confirming a bear cross. Meanwhile, the Relative Strength Index (RSI) turned flattish, despite the late rebound in the Pound Sterling against the US Dollar. This pointed to a negative RSI-price divergence and turned the tide against the GBP/USD buyers.
The corrective decline tested the 1.1854 demand area, which acts like a double top pattern for this uptrend that started in Q4 2022, as the daily chart shows.
That support is the 38.2% Fibo level of the same descent. The next relevant downside target is aligned at the 23.6% Fibo level at 1.1268. Further south, if GPB bulls fail to defend the October 2022 low (dashed horizontal line) of 1.0923, then a renewed sell-off toward the 37-year low could be in the offing.
Should GBP bulls defy the bearish signals and resume the ongoing rebound, GBP/USD could see a fresh upswing toward 1.2785, the golden ratio of the 61.8% Fibo level. Recapturing the above-mentioned 50% Fibo barrier is critical to sustaining any additional recovery attempts.
Acceptance above the 61.8% Fibo resistance could challenge bearish commitments at a powerful supply zone at around the 1.2950 area, where the falling (dashed) trendline, 21- and 50-month SMAs converge. That will be a tough nut to crack for Cable optimists. Up next, the descending 100-month SMA at 1.3452 will come into the picture if the GBP/USD pair seeks a monthly close above the confluence hurdle.
All in all, GBP/USD could likely emerge as a bearish trade for 2023, with investors resorting to a ‘sell the bounce’ strategy on every renewed upside.
EUR/GBP shows a trading range and the pair is forecasted to edge towards the upper band around 0.90-0.92 during 2023.
The GBP/JPY lost momentum and shows a reversal pattern on the weekly chart. After testing the lower band of the channel that became resistance, the next key support level is 155.00-156.00. A breakdown should send the price below 150.00 levels.
What drives the GBP/USD Currency Pair
The EUR/USD trend depends on what stage of the cycle the global economy is at. During a recession, the demand for safe-haven assets, including the US dollar, increases. As a result, the pound/dollar goes down.
During a recovery from a recession, investors are not that focused on preserving money. Retail investors search for ways to multiply the deposit. At this stage, the fundamentals driving the GBP/USD currency pair are the GDP growth rates and the monetary policy of central banks.
A strong economy is a strong currency. The rapid rebound of GDP after the recession is a reason to buy securities of the country. In particular, the belief that the US economy will fully recover from the 2020 recession in the second quarter of 2021 and exceed its potential level in 2022 contributed to the USA 500 rally by 18% from January to early August. As a result of the capital inflow into the US stock market, the US dollar was strengthened.
The GDP rate is a tier-1 indicator but, unfortunately, lagging. The GDP report is published a month or month and a half after the end of the quarter. Therefore, it is very difficult to determine whose economy is growing faster at a particular time, which doesn’t provide a clear picture of the current economic situation to investors. That is why forex traders have to monitor some leading indicators, such as the US and UK PMIs.
The more the economy heats, the more likely the central bank to phase out the quantitative easing program and hike the interest rates. As a result, the assets denominated in the local currency grow more attractively. That is why the US dollar is currently strengthening against a basket of major currencies.
To understand the Fed’s intentions, one should track such economic indicators as inflation and unemployment rate. When these indicators reach the thresholds set by the Fed, the central bank starts scaling back monetary stimulus. In this case, the greenback will grow in value.
Speeches of central bank representatives are important in forecasting the GBP/USD exchange rate. The officials’ comments give a clue on how the central banks’ policies could change, and investors could develop trading strategies based on this.
GBP/USD Trading Tips
A necessary condition to look for buy opportunities in the long term is the sync trends in the global economy. If the US GDP features robust growth, but the UK area faces problems, traders may look for sell opportunities.
Monitor the global financial markets. If the S&P 500 and oil are rallying up simultaneously, it is a reason to buy the Pound versus US Dollar. If the stock index is growing and the black stuff is falling in value, or both financial assets are depreciating, it may be relevant for traders to look for sell opportunities in the GBPUSD.
Study the history of the financial asset’s quotes. An example that took place in the past may emerge in the future as a potential GBP/USD price movement.
Use technical indicators in trading the GBP/USD to determine the current market state and key support/resistance levels. If the Moving Averages often cross the GBPUSD chart, the market is trading flat. If the price chart is above the EMA, the trend is bullish; if the price is below the indicator, the underlying trend is bearish.
Use Japanese chart patterns and western chart patterns like head and shoulders, double top and bottom, or triangles to identify entry and exit points.
Do not try to use all popular trading strategies; you’d better find the one that suits you best.
Always observe the rules of your online trading system.
It’s important to remember that any long-term forecasts, even the GBP/USD forecast, or any other currency pair, are too unreliable to believe in. Too many factors may affect the rate of the currency pair, and it’s best to be up-to-date with what’s happening in the global arena in order to make realistic and reliable predictions.
If you do decide that trading this currency pair is something for you, and you believe in the future of the British Pound vs. US Dollar pair, first, you need to decide on a suitable trading strategy for you and work it out first on a demo account, and then on a real account.
A great reason to open a trading account with CAPEX.com! We provide a user-friendly trading app with an outlook for novices as well as experienced traders and investors.
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British Pound Forecast FAQ
Will British Pound go up or down?
Long-term forecasts are unreliable. However, the GBP/USD pair follows certain long-term trends. So, if you look at the price chart, you will notice the price repeats its actions over the long term. For short-term trades, you should check fundamental factors that usually affect the GBP/USD rate.
Will the British Pound go up in 2023?
According to the latest British pound price predictions, the GBP will more likely fall against the US dollar in 2023.
What influences the GBP to USD exchange rate?
The GBP/USD rate is the ratio of the currencies of two of the largest economies in the world - the UK and the USA. Therefore, important economic and political news from the UK and the US directly affects the pound-dollar rate. These, among other factors of influence, are called fundamental; in addition to them, there are also technical ones.
Is USD up or down next year?
Analysts believe the GBP/USD pair fall in 2023. It means that the US dollar will appreciate against the pound in the forex market.
Is the British pound a buy or sell?
How you should trade the GBP/USD pair is a personal decision you should make based on your risk tolerance, investing strategy, and portfolio composition, after researching the market to understand the latest trends, news, and analysis. Keep in mind that past performance is no guarantee of future returns, and never trade money you cannot afford to lose.