A “rollercoaster” is perhaps the best word to describe the GBP/USD performance throughout 2019.
The year has been a rather torrid time for the British pound. The ongoing Brexit saga continued to hamper the value of the currency, with the GBP/USD dropping as low as 1.20 in early September.
During the latter half of December, the pair finally gained a short-lived upside momentum, with its rate soaring nearly 12 per cent in reaction to the Conservative Party winning the important UK parliamentary elections. However, last week saw the pair shed all those gains and lose in value even more.
While the latest GBP/USD price chart looks nothing but volatile, and both Brexit and the US-China trade war seems far from over, everyone wants to know: what is going to happen next?
Let’s find out whether it is the right time to add this forex major to your investment portfolio as we head towards a new decade. In this article, we recap the basics of the GBP/USD pair, take a look at what factors influence its rate, review its recent performance and check out the latest pound to dollar forecast 2020.
Brief GBP/USD background check if you are new to the forex market
The GBP/USD is the British pound and US dollar currency pair, representing how many US dollars – the quote currency – are needed to purchase one British pound – the base currency. The GBP/USD pair is typically referred to as the “cable” due to the deep-sea cables that used to deliver the bid and ask quotes between New York and London.
The GBP/USD is one of the most cash-rich currency pairs and the third most-widely traded in the world. Many international traders choose this pair due to its exceptional liquidity. The tight bid-ask spreads, large volume of trades and high volatility all contribute to why the GBP/USD pairing is so popular in the market. In 2019, the pair made up 9.6 per cent of all daily forex transactions.
The GBP/USD typically has a positive correlation with the EUR/USD and a negative correlation with the USD/CHF currency pairs. This is due to the positive correlation of the sterling, Swiss franc and euro.
Factors that impact the GBP/USD value
There are a plethora of factors that influence the value of the British pound and the US dollar in relation to each other and other currencies. First and foremost, one of the key drivers of the pair’s rate is the overall health of the world’s two major economies: those of the United Kingdom and the United States. Particularly important points to look out for are the countries’ GDP growth figures, labour market conditions, import and export data, inflation rates or any relevant events with high economic significance, such as Brexit or the US-China trade war.
Monetary policy is another important factor that influences the GBP/USD pair and is one of the biggest determinants of its value. Therefore, the interest rate differential between the UK’s Bank of England and the US Federal Reserve (Fed) should also be considered when analysing the market and possible future direction for the GBP/USD pair.
Fortunately, modern financial markets have full media coverage. All the needed information can be easily found from a wide variety of resources, both online and offline, giving you the opportunity to stay on top of the latest market news and developments.
The GBP/USD price analysis: volatility at its finest
Let's take a look at the GBP/USD trend by checking its historic exchange rate over the past two decades:
As the GBP to USD analysis suggests, in recent history, there are two instances where the rate of the pair fell significantly: in 2009 and 2016.
At first, the British pound’s value fell sharply during the Great Recession. In 2007, the GBP/USD hit a decade high – over 2.10, right before falling below 1.40 in 2009, losing over a third of its value. Over the next five years, the currency had recovered to trade against the US dollar at around 1.6.
Another incident took place in June 2016. Then, the GBP/USD rate experienced a dramatic decline following the UK’s vote to leave the EU. The currency pair dropped over 10 per cent in one trading session and lost almost 20 per cent over the next month. The decision to leave the EU was seen by the global community as a negative step for the country’s economy, increasing the uncertainty that led to investors pulling money out of the UK at a rapid pace. Throughout the year, the pair had fallen from 1.45 to 1.22, its lowest rate at the time since 1985.
In 2017, the GBP/USD pair gained an upside momentum, ending the year as high as 1.357. The start of 2018 saw a continued bullish trend, with the British pound steadily appreciating in value against the US dollar. Buoyed by Brexit optimism and continued speculation over the BoE rate hike, the pair reached its peak in early April – 1.437, the strongest level since the UK’s EU membership referendum in June 2016.
However, the uptrend was short-lived, followed by a significant reversal in the market sentiment. Over the course of the year, with the exception of occasional spikes, the GBP/USD rate had lost much of its value, highlighting the significant level of investor uncertainty in the British pound and falling as low as 1.247 by mid-December 2018.
In 2019, the GBP/USD pair gained some positive dynamic during the early part of the year only to record some heavy losses over the next six months, dropping below 1.20 in early September.
Things got a bit better during the latter half of December, with the pair soaring nearly 12 per cent in reaction to the Conservative Party’s victory in the UK general election on December 12.
However, last week saw the pair shed all those gains and fall even further. The pound’s plunge on revived hard Brexit fears was one of the biggest market news. Meanwhile, the US dollar benefited from the fresh signs of strength in the US economic data as well as positive developments in the US-China trade tensions, pushing the GBP/USD rate downward.
The pound to dollar forecast 2020 and beyond: what to expect
Nowadays, the British currency cannot boast of its stability, remaining at gunpoint with the unceasing Brexit worries.
Analysts at Rabobank argued that “the electorate may have given PM Johnson a majority in the House of Commons on the hope that he could finally put Brexit to bed, but trade negotiations between the UK and the EU will dominate much of the domestic political landscape.”
They also added that should “talks be difficult a ‘no deal’ Brexit would still be a prospect for the UK at the end of 2020. This could bring strong downside potential for GBP.
Apart from renewed Brexit uncertainty, investors should also keep their eyes on UK economic fundamentals. The latest reports have been indicating that the country’s economy is slowing down. In its December policy statement, the Bank of England lowered the forecast for quarterly growth in the final three months of 2019 from 0.2 per cent to 0.1 per cent but predicted the economic growth to accelerate in early 2020. However, if the downward trend continues, it will set the stage for rate cut speculations and might exert some additional pressure on the British currency.
Thus, the fundamental background for the pound remains quite negative, heavily impacting the GBP/USD outlook. However, sterling is not the only currency to be considered when trying to make pound to dollar predictions.
Many analysts express concern about the future of the US dollar, with some predicting bearishness in 2020. Piotr Matys, a currency strategist at Rabobank, said: ‘We’ve held a constructive view on the dollar for two years and expect it to hold relatively steady in the first half of next year, then weaken as we think the Fed will have to cut rates again.
Moreover, the US economic growth has started showing some signs of deceleration and might prompt the Fed to provide support to the economy by cutting interest rates further.
On the other hand, positive trade developments between China and the US bring more support to the US dollar. The latest news about the “phase one” agreement has been taken positively by the market, strengthening the USD performance.
Analysts at the UK's HSBC said the USD is likely to remain “the currency to own” for the foreseeable future, while the US’ Goldman Sachs predicted a modestly weaker dollar in 2020. Both, however, said their views on the US dollar are at risk of an unexpected US-China trade deal being delivered at some point in the coming months.
Let’s check what the latest pound to dollar predictions look like based on the data gathered from several online services.
According to Longforecast.com, a popular forecasting agency, the GBP/USD is expected to trade in the range of 1.288-1.344 by December 2020. Here is its detailed British pound to dollar forecast for the next few years:
Another service known for their pragmatic predictions, Walletinvestor.com, has taken a bearish stance, referring to the GBP/USD pairing as a potentially “bad, high-risk one-year investment option”. Considering their analysis, your current investment into the pair may lose value in the near future, with the GBP/USD rate falling as low as 1.27 in one year.
Based on its GBP to USD forecast 2020, the pair is anticipated to have a price uptick in the first half of the year before entering into another downtrend:
In the long run, it expects the GBP/USD pair to trade in the range of 1.23 - 1.27 throughout 2024:
On the other hand, Gov Capital has a much more bullish outlook. Based on an internal deep learning algorithm, it has predicted that by the end of December 2024, the GBP/USD rate may reach a whopping 6.648.
However, its one-year GBP vs USD forecast looks less optimistic, with the pair’s rate falling below 1.25 by December 2020.
If to speak about short-term perspectives, according to Trading Economics’ analysts expectations and global macro models, the pound sterling against the dollar pairing is expected to end this quarter at 1.28. Looking forward, it estimates it to trade at 1.26 in 12 months time.
Technical GBP to USD analysis from Tradingview.com shows real-time ratings for the pair for one month. The summary is based on the most popular technical indicators: Moving Averages, Oscillators and Pivots. Here are the latest results:
As both the US-China trade war and Brexit are still far from being done and should continue to play a key role in influencing the sentiment surrounding the British pound and the US dollar, it may not be the best time to invest your cash in the GBP/USD pair for the long-term. However, you can still try to profit from the forex volatility through the contracts for difference.
Will the GBP/USD rate go down or soar to hit new record highs? Do you have a GBP/USD forecast 2020 of your own?
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