GBP to USD Forecast

History of the GBP to USD

The GBP/USD forex exchange rate has had a long history because of the strong business and social ties between the United States and the United Kingdom. The British pound was created in 1694 after the UK formed the Bank of England (BoE) while the US dollar was created in 1794.

The GBP/USD currency pair was nicknamed the cable because of the transatlantic cables that connected the UK and the US. These cables were connected to submarines, which relayed the exchange rate between the two currencies.

For a long time, the decline of the British economy on the global stage has witnessed a fall in its market share. This decline accelerated when the UK gave up many of its colonial countries in Europe, Asia, and South America. At the same time, this decline coincided with the strong performance of the United States as a superpower.

Latest GBP to USD forecast

The performance of a currency pair is determined by a number of factors, including fiscal and monetary policy, trade flows between two countries and geopolitics.

BoE and Fed decisions

Central banks have an essential role in determining the performance of a currency pair. In February, the Federal Reserve and Bank of England (BoE) made their first decisions of the year. In the US, the Fed decided to downshift its policy by hiking rates by 0.25% and before that, it hiked by 0.50% in December and 0.75% in the previous four meetings.

The statement was interpreted to mean that the Fed was getting ready to pivot since inflation has been in a downward trend. In December, the headline consumer inflation dropped to 6.5%, down from last year’s peak of 9.1%. Retail sales have eased while manufacturing and service sectors remained under pressure.

On the other hand, in February 2022, the Bank of England decided to hike rates by 0.50% as there are serious recession fears of low productivity and double-digit inflation. As such, a slowdown in interest rate hikes could spur more inflation while an acceleration of hikes will lead to a deeper recession.

UK economic slowdown

There is also a divergence between the economic performance of the US and the UK. In the UK, estimates are that the economy will continue struggling in 2023 due to the sluggish performance of several important sectors.

For example, the housing sector is reeling as high-interest rates and inflation remain strained. Data by Nationwide showed that house prices have been in a steep decline and moved to the lowest point since 2020.

UK’s retail sales have also plunged while industrial production has continued moving downwards. For example, the automobile sector has continued to plummet, with vehicle production now at the lowest level since the 1950s.

Brexit has also made the situation worse, with increased bureaucracy at the border.

On the other hand, the American economy seems to be doing better. In February, data from the US showed that the unemployment rate plunged to 3.4%.

Another small catalyst for the USD strength is the fact that the US has positioned itself as a leading player in Liquified Natural Gas (LNG) after Russia stopped shipping gas to Europe. Further, the US is also increasing its manufacturing activity, especially with semiconductors.

Therefore, there is a likelihood that the US dollar's strength against the British pound will continue for a while.

Technical analysis

On the 1D chart, the GBP to USD price has been in a bullish trend in the past few months. After falling to a low of 1.0697 in September 2022, the pair jumped to a high of 1.2418 in December 2022. The latter price was along the 61.8% Fibonacci Retracement level.

However, the pair has formed a double-top pattern with the neckline at 1.185. Therefore, the outlook of the GBP/USD pair is bearish, with the next key support being at 1.1160, the 23.6% retracement level.

Transferring GBP to USD

The UK and the US have a very close trade relationship. They both are part of the G7 and the Organization for Economic Cooperation and Development (OECD). In most sectors, the US is the biggest investor in the UK.

According to the UK government, the total trade between the two countries was worth over £262.7 billion in 2023. The UK exported goods worth over £161.5 billion to the US and imported over £101 billion. At the same time, the UK and the US do a lot of investments together, which helps boost GBP/USD liquidity. The UK invested £461.4 billion in the US while US companies invested over £675 billion in the UK.

The British pound and the US dollar are seen as some of the most stable currencies in the world. They usually have low transaction costs because of the relatively thin spreads between the two pairs.

Many money transfer companies like Wise, TransferGo, and PayPal make it so easy to send GBP to USD and vice versa.

Is it a good time to buy GBP with USD?

A common question is whether it is a good time to buy the GBP with the USD. The GBP/USD price rose by ~20% between September 26, 2022, and December 14. This increase happened as investors started to price in a situation where the Federal Reserve starts to pivot.

As noted in the technical analysis above, the GBP/USD pair has formed a double-top pattern signaling that it will continue falling in the coming weeks. Therefore, at the current exchange rate, if you spend $100 to buy pounds, you will get £82.96. However, if you wait to buy when it drops to our target of 1.1160, your $100 will be $111.6. Therefore, you can buy the GBP with USD and benefit as the price drops.

The main risk with this is that most items, including oil, are priced in US dollars. Therefore, while your GBPs will be higher, there is a possibility that the stronger dollar will also spur inflation.

GBP to USD 6 months forecast

The GBP to USD price will react to numerous things in the next six months. First, the pair will respond to inflation trends in the US and the UK, which will impact the outlook of central banks. Expectations are that inflation will continue falling in the coming months and the spread between the UK and US CPI will likely exist.

Second, there will be a divergence between the US and UK economic output. While the US is expected to do well, the UK is expected to remain on edge. Therefore, these factors could mean that the sterling will remain under pressure for a while.

As I noted above, the GBP to USD has formed a double-top pattern, signaling that the recent recovery may be approaching its end. Therefore, the outlook of the pair in the next six months will be bearish. Therefore, you can take advantage of this trend by moving your GBP to USD and then benefit as the greenback strengthens.

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