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Will the Pound crash? Predictions for GBP/USD amidst US and UK rate cuts!

Will the Pound crash? Predictions for GBP/USD

Interest rate cuts are among the most significant issues of the year, standing alongside notable events such as the U.S. presidential elections and the escalation of geopolitical conflicts worldwide. This has made it imperative for financial analysts at major banks to frequently revise their economic forecasts to accommodate the fluid market conditions.

Consequently, there is a widespread expectation among financial experts that the British pound will continue to weaken. This is anticipated to bring the GBP/USD exchange rate down to a support level around 1.23, influenced primarily by the disparity in the pace and magnitude of interest rate cuts between the United States and the United Kingdom.

The adjustments in the strategies for interest rate reductions in both the U.S. and the UK have necessitated a revision of our earlier projections for the GBP/USD exchange rate. In the case of the Bank of England, the current expectation is for four rate cuts within the year, starting from August, although there are opinions suggesting that cuts could begin as early as June. We consider an earlier start premature.

On the other hand, the U.S. Federal Reserve is likely to start its rate cuts in September, which supports a strong outlook for the U.S. dollar in the first half of 2024. This scenario could lead to a decline in the GBP/USD rate to the levels it was in the fall of 2023, targeting initially the 1.23 mark.

Market analysts are closely observing the behavior of the GBP/USD exchange rate. After three months of consolidation, the currency pair was unable to surpass the psychological resistance level at 1.29, and subsequently, it depreciated more than 4% within a single month. These developments mirror the circumstances in autumn 2023, when the market was influenced by a hawkish stance from the U.S. Federal Reserve combined with expectations for impending rate cuts by the Bank of England.

From a broader perspective, the GBP/USD exchange rate recently showed a break from its short-term upward trend. The rate rebounded from the upper boundary of the rising channel, which is marked between 1.29 and 1.30. This indicates a potential shift in market dynamics, where bullish sentiment might be waning, leading to possible adjustments in trader strategies and market forecasts.

During the most recent trading session on Friday, sellers successfully broke through a critical support level at 1.24. This development could lead to further bearish momentum in the coming weeks, potentially testing the lower boundary of the growth channel at 1.23. This level now stands as the immediate target for the GBP/USD, suggesting a continuation of the bearish trend.

The future movements of the pound sterling will likely be influenced by pivotal economic data releases from the UK, especially regarding wages and inflation. Although inflation is expected to remain somewhat persistent, it is projected to decrease significantly by summer.

Despite upcoming elections in the UK, possibly in October or November, it is not anticipated that these political events will substantially affect the pound. The prevailing scenario suggests that the pound will continue to face selling pressure amid worsening global economic sentiment and a shift of capital towards the comparatively safer U.S. dollar.

gbpusd analysis, forex trading
GBP/USD daily chart, MetaTrader, 22.04.2024



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