The pound has now tumbled against the dollar for 2023 thanks to the sharp drop in February, and some analysts say further declines below 1.20 are possible over the coming weeks. The market's reaction to the testimony of Jerome Powell, Governor of the US Central Bank, was strongly supportive of the downward path of the GBP/USD pair, as it fell to the 1.1822 support level, the lowest for the currency pair in four months, which confirms these negative expectations for the performance of the pound sterling.
Research by ING Bank shows that the GBP/USD exchange rate may in fact fall to a four-month low during March, but a more sustained recovery is still expected towards the end of the year. The assessment comes after the dollar rebounded in February as investors realized that the Federal Reserve would need to raise interest rates more than they expected at the start of the year. For his part, Bilal Hafeez, head of research at Macro Hive, says: “We are in the camp that the Fed will raise it more than most investors think, which may maintain support for the dollar.”
All in all, the pound-to-dollar exchange rate (GBP/USD) is now down for 2023 after falling 2.45% in February in a move that reversed January's advance of 1.87%. The dollar found favor again after a series of US economic reports revealed that the economy was strong enough to continue generating above-target inflation levels, necessitating further rate hikes at the Fed.
Data remains in the driving seat and key near-term events that could lead to higher dollar volatility include the Fed's decision on March 22, US payroll data on March 10, and CPI inflation on March 14.
Readings above consensus may encourage dollar bulls. Likewise, weaker-than-expected readings could punish the dollar, providing GBP/USD some near-term support. For his part, Jonas Goltermann, deputy chief market economist at Capital Economics, says: “A return to a measured pace of job growth, in line with what we and most other forecasters expect, is likely to extract some strength from the dollar’s recovery.”
If this prediction is correct, GBP/USD could find itself supported above 1.20 this week. Chris Turner, Head of FX Research at ING Bank, said, “The main focus will be on US activity data and the FOMC meeting. As for the former, the big question is whether the rebound in US activity data for January (payroll, retail sales, etc.) was largely weather-related and seasonal adjustment.”
ING's American economist, James Knightley, believes it was. "Softer activity data could weaken the dollar a bit this month," he added. But for the strategy team at ING, March is too early to bet against the Fed and on a weaker dollar. Thus, any weakness in the US dollar caused by this week's data readings could be relatively short-lived. Meanwhile, analysts said the BoE is very close to a pause in the rate hike cycle from the Fed or the European Central Bank, which could in turn weaken the pound.
Bank of England Governor Andrew Bailey said in a speech last week that a March rate hike was not guaranteed, suggesting that the bank was closer to a pause than markets expected. Accordingly, the analyst added, “The modest rise of 25 basis points on March 23 could be evidence of some downside risk for GBP/USD – perhaps to the 1.16/18 region.”
However, the exchange rate is likely to recover towards the end of the year as the dollar is still looking at weakness more broadly by the majority of analysts.
Sterling forecast against the dollar today:
We often recommended selling the currency pair from every bullish level. Yesterday's losses were sufficient to push the technical indicators towards oversold levels. We must take into account that the continuation of the current weakness factors does not prevent the pair Currencies are currently moving strongly downwards, near the support levels 1.1790 and 1.1680, respectively.
According to the performance on the daily time frame chart below, the bulls will not regain control of the trend without moving towards the resistance level 1.2145, otherwise the trend will remain bearish, and as mentioned, the gains of the Sterling Dollar will remain a target for selling.
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