A turbulent year for the pound is coming to an end. Signs of a painful economic downturn in the UK continue to emerge. It causes doubts among analysts whether the currency will be able to continue its recent rebound against the dollar, or at least keep it. The options market remains skeptical as well. Traders don’t show a positive attitude towards the long-term outlook.
Next year, opportunities for currency growth may be limited by divergent central bank policy, as the Bank of England will be forced to ease monetary policy. In addition, the U.K. economy is looking worse, the government budget deficit is soaring, and double-digit inflation has led to the sharpest drop in living standards in recorded history.
JPMorgan’s analysts are predicting that the pound will return to $1.14 by the end of the first quarter, up from $1.20 currently. The reason for such a forecast is their particularly negative view of the outlook for growth in the United Kingdom. In addition, the upcoming local elections in May could cause political uncertainty. Strategists polled by Bloomberg believe the currency pair will fall to $1.17 in the first quarter before recovering slightly to $1.21 by the end of 2023.
However, all these projections are focused on the medium-term period.
Now the Christmas holidays have started all over the world, trading activity in the markets is minimal, the news background is subsiding. Therefore, sharp movements in currency pairs are not expected in the coming sessions, and the technical levels should be observed in the short term.
After the pound rallied 20% from the low, the currency has stabilized at the level of 1.20. The current point is the boundary of the uptrend, which has already been tested several times. Amidst a calm external background or the positive market sentiment during the Christmas period, it can be assumed that this trend will resist, and the pound will try to rise again. It can be observed that the GBP/USD is stabilizing around the 200 SMA, thus, there may be another attempt of crossing it up.
The growth target is 1.225, this level of resistance has been repeatedly tested before. Stop-loss is set below the uptrend at 1.190.
Growth of the currency pair GBP/USD:
Take profit – 1.225
Stop-loss – 1.190