- The pound sterling fell further in the final session of a turbulent year, leaving it behind most of the major currencies for 2022 while both the US dollar and the Swiss franc remained leaders during the period.
- In the case of the GBP/USD currency pair, it struggled not to collapse below the 1.2000 psychological support level, so as not to increase selling operations.
- This performance warns that sterling's gains in the future will remain a target for selling.
In general, the pound sterling was retaining gains at the end of 2022 trading against the dollar, the Swiss franc, the dollar block currencies and the South African rand on Friday. It continued to incur heavy losses for this year against all currencies except for four currencies in the Group of Twenty with the Turkish lira and the Swedish krona, and the Japanese yen performed worse.
Commenting on the performance, Kate Jukes, Senior Forex Analyst at Societe Generale, said: “The Swiss Franc has been eroding the dollar's advance in the G10 currencies in recent months but has not been able to completely overtake it. The US dollar ran out of steam as the market refused to price in the FOMC rate path. The weakest G10 currency in the fourth quarter,” the analyst added, “the dollar has been supported by Fed tightening, a terms-of-trade shock from higher energy prices and insulating from the impact of both China's non-proliferation policy and Russia's invasion of Ukraine, but as the year draws to a close None of those factors were the driver it was in mid-2022.”
Several factors have pushed sterling lower this year, but it was the best performer among the major currencies until shortly after the Russian army crossed into Ukraine on February 24. Since then, symptoms of the war in Ukraine have added to the pound's losses, including rising inflation, a worsening trade deficit, and a widening current account deficit. However, analysts also say that the pound's poor condition is a result of the Bank of England (BoE) being too slow and cautious in raising the bank's interest rate to offset higher inflation at a time when other central banks were moving faster.
How far and how fast can the economy be expected to deteriorate?
The increase in bank interest rates has been greater than anything we have seen since the 1980s and the period leading up to what was a brutal recession, and the Bank of England's latest projections indicate that a reboot in this type of economic scenario is most likely in 2023.
“GBP/USD has been more tame and contained well in a range between 1.2100 and 1.2000,” says Brad Picktel, forex analyst at Jefferies. He added, “A move through 103.50 in the DXY could be enough to pull GBP/USD off the lows and back through 1.2100, but I have the impression that we will end up below 1.2000 very quickly in this pair and EUR/GBP will fall.”
Sterling forecast against the dollar today:
In the near term and according to the performance on the hourly chart, it appears that the GBP/USD is trading within a bearish channel formation. This indicates significant short-term bearish momentum in market sentiment. Therefore, the bears are looking to extend the downward movement towards 1.2011 or below to the support 1.1992. On the other hand, the bulls will be looking to pounce on profits around 1.2075 or higher at the 1.2106 resistance.
On the long term, and according to the performance on the daily chart, it appears that the GBP/USD is trading within a sharp descending channel formation. This indicates a strong long-term bearish momentum in market sentiment. Therefore, the bears will target long-term profits at around 1.1934 or below at the support at 1.1819. On the other hand, the bulls will be looking to pounce on profits around 1.2136 or higher at the resistance at 1.2239.
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