The UK pound (GBP) to US dollar (USD) is one of the most widely traded “major” currency pairs. GBP/USD is often referred to as “the cable” in reference to the underwater communication cable first used to communicate exchange rates in 1866 between the New York and London stock exchanges.
The pair is significantly impacted by global politics, central bank fiscal policies, macroeconomic factors, and risk sentiment. In the GBP to USD pair the pound is the base currency and the dollar is the quote. At today’s price of around 1.29 (as of October 14, 2020) it would take $1.29 US to buy £1 GBP.
Pound to dollar predictions indicate that the pair will face increasing volatility in the short term before stabilising in the latter part of the year.
Brexit, coronavirus infection rates and the upcoming US election are all major components influencing the GBP/USD prediction for the remainder of 2020.
The pound has been experiencing a bullish correction from an almost 5 per cent depreciation against the dollar in September – and briefly broke through the psychological resistance level of $1.30 before dipping just below.
GBP/USD latest forex news
Brexit negotiations are the foremost issue affecting the sterling to dollar forecast currently. While it is widely believed that the UK will reach at least a working deal with the EU before the self-imposed October 15 deadline, any headlines that hint at a breakdown of negotiations could send the pound into a short-lived tailspin.
If the parties can come to even a basic agreement to continue negotiations, this should increase momentum of the already strengthening pound.
While there has been a shift away from safe haven currencies in the late summer and early fall, increasing Covid cases in the UK and Europe are already requiring regional lockdowns. Indications from the UK government of more widespread lockdowns, and the resulting economic downturns, would push traders back towards the “safe haven” USD and weaken the GBP/USD outlook.
US presidential election
Positive news surrounding the next wave of stimulus financing in the US would likely counteract anything but the most dire warnings from the UK and serve to increase traders’ enthusiasm for major currencies other than the USD, leading to an overall strengthening of the pound.
Elections in the US are scheduled for November 3. Headlines regarding the turbulent campaign continue to factor in the GBP/USD analysis, notably a refusal by President Trump to negotiate further stimulus until after the election, although he quickly backtracked on this statement as markets tumbled.
The election will continue to impact short-term movements in the pair although most major banks are now predicting a blue-wave Biden win. Many analysts believe a Biden win will lead to an expansive roll-out of targeted stimulus funding which will lower perceived risk and lead to a further pull-back from the safe-haven USD.
This would result in a continued strengthening of the pound against dollar forecast. Alternatively, if Biden wins some believe that he may impose restrictions on the US economy in an effort to curb the rampant spread of coronavirus in that country. This would lead to an increased perception of global risk among traders and strengthen the USD against the GBP.
GBP/USD analysis and sentiment
As noted above there are multiple factors influencing the GBP vs USD forecast, all of which result in different trajectories for the pair depending on their outcome.
While far from certain it is a widely held sentiment that there will be at least a working Brexit deal reached prior to the next deadline. Any outcome more positive than simply an agreement to continue negotiations should result in increased strengthening of the pound.
It is also yet to be seen if rising infection rates in the UK will require stricter lockdown conditions affecting the economy, although positive progress in US stimulus negotiations and the upcoming election should serve to increase traders’ appetite for risk, weakening the USD and strengthening the pound.
News from the Bank of England that they are preparing for negative interest rates if required should also strengthen the pound even as the infection rate increases.
The US dollar is currently regarded as overvalued in terms of US monetary policy – and indications of stability, regardless of the election outcome, should accelerate a shift away from the USD for global traders.
GBP/USD: buy or sell
As 2020 has proven multiple times there is always a possibility of unforeseen scenarios which can quickly alter the landscape. But with the information that is currently available and likely outcomes of major factors shaping the GBP/USD prediction, the pair is considered a buy towards the end of 2020.
In the short-term, any (minor) negative news surrounding Brexit negotiations or increasing uncertainty leading up to the US election could trigger a short lived sell signal. However, the pound is expected to strengthen as we head towards the New Year.
According to Trading Economics’ GBP/USD forecast for the rest of 2020, the British pound is expected to trade at 1.28 by the end of the year. Going forward, analysts predict that the pair will trade at 1.26 in 12 months' time, which is 2.3 per cent lower than the latest price of 1.29.
It should be noted that major deviations from the perceived likely outcomes discussed, for example, a complete breakdown of UK and EU negotiations, would completely shift this outlook towards the USD.
If the above scenarios play out, even relatively close to the predicted conclusions, all factors point to a small but steady strengthening of the GBP through to the end of 2020.
Most major world banks are predicting a short period of volatility, albeit within a narrow band, followed by a stable period for the two currencies with global risk perception decreasing and favouring the pound.
Traders should monitor the spot rate and any dips not directly related to the aforementioned issues could be regarded as a buy signal. As with most investments in the current economic climate there is a lot of ambiguity regarding how the pandemic will unfold in the coming months and any signal of widespread lockdowns or complete closures in major economies will immediately shift the bias to the USD.
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