The Great British Pound (GBP) is one of the most traded currencies in forex, and GBP pairs are also one of the most analyzed forex pairs on trading view. GBP pairs are popular due to GBP’s volatility and liquidity, two factors that traders watch out for when trading. Due to worsening economic conditions, recent market movements have seen the GBP fall against the USD and EUR. Therefore, traders seeking price predictions must consider the factors driving the demand and supply and investor confidence in the British Pound. This article explores some of these factors and some 2023 expert views and predictions for the GBP.
GBP Price History And Current State
The GBP has a strong price history, developing into one of the strongest currencies in the world over 1,200 years of history. In the 1940s, when the Bretton Wood was in place, the government devalued the GBP against the USD by 30%, bringing the price to USD2.80 on 19th September 1949. Following the collapse of the Bretton Wood system, the Free-floating system saw the GBP rise to USD2.65. By 1980, the GBP traded at USD1.03, then rose to USD1.70 in December 1989. Since the 90s, the GBP has maintained a strong position against the USD and EUR until recent economic crises have weakened it.
Despite being a significant economic force, the UK is facing its most challenging financial situation in over a decade. Living expenses are increasing, no thanks to global inflation and poor economic growth, which is forcing investors to seek shelter in other currencies. Last week, the GBP hit a new 37-year low against the USD, with experts expecting a steeper fall. However, the Bank of England is expected to roll out policies to stem the fall and possibly kickstart a recovery. The current events, including the assumption of a new monarch, a new Prime Minister, and some cabinet changes, are expected to impact the economy differently. As the UK prepares for winter, concerns about energy availability for heating homes amid rising housing costs may also impact the GBP price.
Factors To Watch For GBP in 2023
When forecasting the price of GBP in 2023, certain factors are essential due to their impact on the demand and supply of the currency and how they affect investors’ confidence. There are four key factors to watch for in 2023.
The BoE may hike current lending and interest rates by Q1 2023 to improve the GBP s strength against market forces. Although some experts predict some rate cuts as a strategy to provide a soft landing, an increase is most likely. The BoE raised the base rate from 1.25% to 1.75% in August, but further raises could see the rate hit 3% in 2023. Other monetary policies aimed at reducing inflation may be implemented by December 2022 to lead the way into 2023 for a rebound of the GBP. The BoE policies will heavily impact GBP prices by next year, depending on their effects on inflation and investors’ confidence in buying the GBP. For now, market reports suggest a selling pressure on the GBP.
According to the British Chambers (BCC) of Commerce, inflation is set to hit 14% later this year; leading analysts at Goldman Sachs to believe that an economic recession is happening. The BCC says that the UK is already in the “middle” of a recession that may worsen in Q4 2022. A natural consequence of rising inflation rates is the fall of the GBP and loss of purchasing power. If the UK slips into a full recession by December 2023, investors may lose confidence in the GBP, increasing the selling pressure and reducing its strength against the USD and EUR. There’s no telling what could happen, but further slips in GBP price may make it equal to the EUR on parity.
UK New Leaders
Following Boris Johnson’s resignation as Prime Minister, Liz Truss won the votes to become the UK Prime Minister. Within the same period, the UK got a new monarch, King Charles III, following the death of the late Queen Elizabeth II. A change in government is always an important event for economic and political situations. The new Prime Minister is taking over when the UK’s economy fails, and the GBP is grappling with the strength of other currencies. How the new Prime Minister responds, her economic policies, and actions, will impact the price of GBP. Her promise to work on the energy crisis, tax cuts, and foreign political situations has had little effect on investors’ confidence in the GBP, with the price slipping further in recent days.
GBP 2023 Forecast
Paul Dales, Chief UK Economist at Capital Economics, predicts a further 5% decline of the GBP against single currencies, effectively pushing the price to hit record lows against the USD. Dales predicts the GBP/USD price to hit 1.05 by mid-2023, while the GBP/EUR pair may hit 1.17. Analysts at Oxford Economics expect the GBP/EUR price to be steady at 1.16 until Q1 2023 as a direct consequence of rate cuts and other policies. Oxford Economics also expects the GBP/USD pair to trade above 1.20 until the end of 2022 and then rise to 1.23 by the end of Q1 2023. Although the BoE has now raised interest rates more than eight times this year, the expected recession may see the GBP slip up against other currencies in 2023.
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