The US dollar experienced a decline in November, letting the pound stand out among the best performers. The British currency has had an outstanding year. Looking ahead to 2024, however, the outlook for the British currency might not be as positive. Let's delve into the factors that could exert pressure on the pound in the coming year and what to expect from the GBPUSD pair.
Starting from November, the pound has grown by 3.5% against the US dollar, placing the GBPUSD around 1.25. Another noteworthy market to observe in times of crisis is gold, as evidenced by the rising trend of XAUUSD during crisis-led periods.
The US dollar index chart demonstrates that the pound has performed slightly better than average.
Considering major currencies since the beginning of the year can serve as a perfect thought-starter, showing that the GBP has consistently outperformed its counterparts.
The central character of this story is the Bank of England. Its hawkish policy, coupled with the higher interest rate compared to other significant central banks, has kept the pound at the top. However, a critical factor is when the Central Bank of Great Britain decides to decrease the interest rate.
Initial expectations suggested the BoE would take this step later than the Federal Reserve and the European Central Bank, implying a potentially favorable position for the pound in 2024. However, the current economic confidence in Britain lags behind that of the European Union. Many experts have shifted their views, supporting the notion that both the European Union and Great Britain might enter a decreasing cycle around the same time. In this scenario, the euro could become a more attractive option than the pound, impacting the potential growth of GBP to USD.
All these discussions are related to the long-term perspective of the GBPUSD in the first instance. It is unlikely that the USD will experience a significant drop simply because its price has already factored in negative drivers, especially after the decline in November.
In other words, expecting a substantial continuation of the USD's decline towards the end of 2023 and the beginning of 2024 is unlikely. However, changes might occur with the Federal Reserve's interest rate reduction or an announcement of a recession. The fate of the pound during these events hinges on the central bank's policies. Therefore, the prudent course of action is to closely monitor economic news and events, being prepared for various potential outcomes.
