There was a strong offer on the US dollar at the beginning of the first London session of 2023, as both the euro and the pound sterling lost a lot. In the case of the GBP/USD currency pair, it fell to the 1.1899 support level before settling around the 1.2065 level at the time of writing the analysis. The sharp rise in the dollar price is a timely reminder that it is too early to write off the best-performing currency in 2022.
Commenting on performance. “Forex is also coming alive this morning with the dollar pulling back from its lows,” says Kenneth Brooks analyst at Société Générale. “The mid-reversal in yields and the move in the dollar occurred on a day devoid of fresh macro news… This could only indicate That the increase in returns and the weakness of the dollar last week was exaggerated and linked to the end of the year and weak liquidity.
January is a strong month for the US dollar
Weakness in the GBP/USD is likely over the coming weeks. Much will depend on how global investors act and whether the bear market can extend. We've covered the views of several economists who say the bear market is by no means over and it will only be in the middle of the year when a more permanent turnaround can begin. If this is the case, the pound may remain under pressure over the coming weeks and the dollar, and the euro will be better supported.
Overall, the British currency has suffered a soft end to 2022 with slumping demand amid a backdrop of broadly unsupportive global markets - a backdrop of weak stock markets - and an enduring consensus that the UK economy will struggle in 2023.
Sterling's decline coincided with a sharp drop in European gas prices amid seasonal high temperatures, increases in wind production and increased supplies of LNG. This reduces the potential for energy rationing and lower fuel costs will ensure that the worst of the crisis is now in the past. But fuel prices have also fallen in the UK where bulk gas for January delivery is trading below levels seen when Russia invaded Ukraine. This significantly improves the economic outlook for the year ahead and could overturn the consensus forecast that the UK is lagging behind the world's advanced economies. The early interest comes from the annual poll of economists conducted by The Times which found that "Britain is on track to be among the worst performing economies in the world this year".
The 40 economists surveyed were drawn from city, academia and think tanks and provided their forecasts after the last BoE rate hike of the year in December: This is in line with the consensus view among institutional analysts and consistent with the ongoing aversion to sterling.
But the British currency could still outperform if the consensus is turned upside down. Morgan Stanley believes that this rally by Sterling was driven by a combination of postural adjustment and broad dollar weakness, rather than a change in fundamental outlook. Expectations of weak economic performance in the United Kingdom are expected to lead to a continuation of the energy crisis to disrupt growth and ensure that inflation continues to rise. Morgan Stanley lists the pound's rally as one of the 10 surprises that financial markets could deliver in 2023. As mentioned, wholesale energy prices in the UK have fallen significantly and several major contracts are now ahead of pre-invasion levels.
GBP/USD forecast today:
- There is no change in my technical view of the performance of the GBP/USD price, as the general trend is still bearish.
- The approaching and moving around and below the psychological support level 1.2000 confirms this.
- Considering the continuation of gloomy expectations for the future of the British economy this year, any gains for the sterling / dollar pair may be possible to sell quickly.
- In light of the continuation of the bearish outlook, the bears will have the opportunity to move towards the support levels at 1.1940 and 1.1810, respectively.
- The last and lower level is sufficient to push the technical indicators towards oversold levels.
On the other hand, according to the performance on the daily chart, there will be no chance for the GBP/USD pair to reverse the current bearish outlook without breaching the resistance 1.2330, otherwise the strongest bears will remain in control.
Ready to trade our daily Forex analysis? We’ve made a list of the best Forex brokers in the UK worth trading with.
