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Experts forecast weak second half of 2023 for pound. why?

Commentaries & Views

The pound sterling has been a champ among the major currencies in 2023, but many analysts believe its reign is close to ending. We’ll see why experts wait for a weakening of the pound in the latter half of the year.

Let’s examine the chart showing the GBP/USD currency pair movements in 2023. It is evident that the pound has exhibited consistent growth since March.

However, we also know that the US dollar has been on the decline this year, following its strong performance in 2022. In other words, it’s not surprising – the USD is losing ground against another major currency. Hence, it’s necessary to investigate if the pound is as good compared to the other majors.

The GBP is the pick of the basket. Confirmed. Nevertheless, many experts believe that we will witness a different scenario shortly. 

The United Kingdom's interest rate stands at 5% right now and is likely to be raised at the upcoming Bank of England meeting. Under normal circumstances, this would be positive news for the currency’s exchange rate. However, in the case of the pound, it’s not that simple. 

The key factor here is inflation. The peak numbers appear to be left behind for the United States and the European Union. In the US, the inflation has decreased from 9.1% to 4%, while in the EU, it has dropped from 10.6% to 5.5%. In contrast, in Great Britain, the decline in rates has not been as significant – the inflation stays fixed at a mark of 8.7%. 

Protracted inflation may alienate investors and definitely will not benefit the British economy. Therefore, both options – raising or not raising the interest rate – looks like a lose-lose situation for the Bank of England. When coupled with rapidly growing salaries and a slower pace of the nation’s economic development, these factors lead us to dubious prospects for the pound in the coming months.

We mention specific timeframes because the USD is also part of this currency pair (in case you had forgotten). Experts expect big troubles for the US economy. This implies that the pound can regain its solid positions in 2024. At the very least in relation to the US dollar.

Please bear in mind that the Forex market can be highly volatile, and the state of affairs can undergo substantial changes on a daily, weekly, or monthly basis. Therefore, it is crucial to conduct your own analysis before engaging in trades. 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.