British Pound (GBP) Forecast: Sterling's Slide May Continue as New Prime Minister Faces Immediate Tests

British Pound (GBP) forecast: Sterling decline could continue as new Prime Minister faces immediate tests

GBP key points:

  • Outlook: bearish
  • Aaccording to British Chambers of Commerce Fthe forecaststhe UK is already in recession and inflation is expected to reach 14%.
  • Odds thisSterling is lower than the US dollar at the end of the year are Rapid fall.
  • Elections remain key to Liz Truss’ plan for the BohE Considered a threat to the pound and UK bonds.

GBP Week in Review

The GBPdid not have its most productive week, losing ground to the euro and American dollars respectively. At the end of August the GBP recorded its worst monthly loss since the end of 2016 and this continued into early September as the pound briefly slipped to 1.14991, a new low since March 2020 when COVID-19 hit the markets. GBPUSD fell from a weekly high of 1.1757 to trade under 1.15a drop of 280 odd pips remaining on the fence of the Key psychological level 1.15. The losses came on the back of a resurgence in U.S. dollar buying as well as an ever-worsening economic outlook.

The prospect of the pound reaching parity with the US dollar is becoming less and less extravagant. While the UK faces many of the challenges faced by other countries, it has been compounded by its own set of problems. Growth is expected to slow further away in the coming months, based on the unequivocal message of collapsing leading indicators, it won’t be long before the UK is flirting with a recession. According to the British Chambers of Commerce Fpredicts that the UK is aalready in a rassignment withIinflation at hhe 14% Later in the year.

Incoming Prime Minister for the UK

Race for UK’s next prime minister reaches fever pitch on Monday with the expected announcement around 12:30 GMT. The current favorite Liz Truss and his allies have do the BohE a political punching bag, putting the spotlight on Governor Andrew Bailey’s handling of the aftermath of the pandemic. M/s. Truss has been making waves in the election race as his plan to the BohE is considered a threat to the pound and UK bonds. Truss’ thoughts on how to handle bank of england add to a growing list of threats to the value of the pound and UK government bonds. The main concern stems from Truss’ rhetoric that he could potentially upend a three-decade focus on fighting inflation and say policies to use discredited tools in the 1980s. Part of his solution includes a radical shakehow covid debt is handled and a review of the BohThe tenure of E. For now, the markets do not expect any major changess for the BohE as GBPUSD weakness has more to do with feeling oneround inflation and the strength of American dollars. If that happens, we could see a sell-off in gilts and a sell-off in sterling as well, with the prospect of parity with the US dollar coming into play.

UK economic calendar for the week ahead

In early September, the UK the economic calendar is ready to enjoy a half-hearted week. Above course of the week there is only one publication of data rated “high”, while we also have of them publication of data rated “average”s. The UK Prime Minister’s announcement has been added as a high level statement as volatility is to be expected as the news filters through.

here are bothhigh ‘rated’ an eventsfor the coming week oAnd the economic calendar:

  • On Monday, September 5, We have S&P Global/CIPS Services in the UK PMI Ffinal due at 08:30 GMT.
  • Monday, September 5, The new British Prime Minister will be announced in Westminster at 12h30 GMT.

For all economic news and events affecting the market, see the DailyFX Calendar

GBPUSD daily chart, September 2, 2022

British Pound (GBP) forecast: Sterling decline could continue as new Prime Minister faces immediate tests

Source: TradingView, prepared by Zain Vawda.

GBPUSD Outlook and Final Thoughts

The GBP has been influenced by a broader risk appetite this year. August’s rate hike was accompanied by a string of dire economic forecastsaggravated by the The Federal Reserve’s hawkish rhetoric at the Jackson Hole symposium that pushed GBPUSD to new yearly lows. The British pound remains in a precarious position as evidenced by recent data with an increase of CPI planned for the rest of the year as good as rate hike expectations. Rate hike expectations have risen again since the Jackson Hole symposium, with markets now valuing 176 basis points by the end of the year, which has failed to halt the slide (generally, an increase in rate hike expectations should have strengthened the GBP). It is quite possible that any significant movement on the pair will be facilitated by the global tightening cycle as well as the path taken by the new British Prime Minister, as both candidates will target monetary policy.

GBPUSD’s 280 pip decline this week saw the pair below the key psychological level of 1.1500 while also trading below 20, 50 and 100-SMA. The downward slope displayed by the SMAs does not bode well for the British Pound at the start of the week. We have the fib extension level 1.618 around level 1.1432 which I expect to encounter soon. Given that we have fallen significantly without a sustained pullback, we could see a rebound early in the week, which could provide an opportunity for potential sellers to assess their positions.

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– Written by Zain Vawda for

Contact and follow Zain on Twitter: @zvawda

British Pound (GBP) forecast: Sterling decline could continue as new Prime Minister faces immediate tests

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