The bears are still determined to push the price of the GBP/USD pair against the US dollar to break through the 1.2000 psychological support for further downward movement. This is during gloomy reports on the future performance of the British economy. Since yesterday it has been sitting around psychological support waiting for anything new.
Difficult year for the UK for several reasons
First, as part of Europe, the UK could not and did not remain indifferent to the war in Ukraine. After Russia invaded Ukraine last February, energy prices rose. As a result, businesses, and households across Europe, including in the UK, have suffered.
Seconly, the annual rate of inflation rose to more than 10%, meaning the pound depreciated, and it did so mostly against the US dollar, although it has regained some of its lost gains in recent trading months. Third, political instability has led to massive volatility in the forex and bond markets. As the markets strongly rejected the mini budget, as a result, the UK has a new Prime Minister, Rishi Sunak. Fourth - Britain's exit from the European Union. We have yet to see the full effects of this, as the pandemic and now the war in Ukraine has diverted the focus from the UK economy and the impact of Brexit.
One needs to look back at how the pound performed in 2022. GBP/USD opened the year above 1.35, but what followed was a straight decline. During the mini-budget drama, the exchange rate fell below 1.05, a remarkable development considering where the GBP/USD pair was last January. But despite picking up again in the final months of the year, the worst may not be over for sterling investors.
The economic recession is coming
2023 should be a challenging year for the UK economy. It is expected to enter recession next year, contracting by -0.8%. But some other forecasters see the UK economy shrinking by as much as -1.6% in 2023. Rishi Sunak needs to restore confidence in the public finance outlook, and hopes inflation will ease next year. Of course, the actions of the Bank of England are the most important for the currency. After raising interest rates by 50 basis points at its meeting in December, the Bank of England raised its interest rate to 3.5%, following an increase by the US Federal Reserve.
Expectations of sterling against the US dollar today:
- It seems clear that the exchange rate of the currency pair GBP/USD is determined to close the trades of the exciting year 2022 on a decline.
- The movement without psychological support 1.2000 will prepare the bears for further movement towards the next important support levels 1.1910 and 1.1790 respectively.
- On the other hand, according to the performance on the daily chart, the bulls need to break the 1.2330 resistance to regain control of the performance, and this is highly unlikely in the coming hours of this year's trades.
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