Pound is in friendly mood. Forecast as of 13.04.2023

2023.04.13 2023.04.13
Pound is in friendly mood. Forecast as of 13.04.2023logo

The IMF reminder of a recession in the UK economy, coupled with zero GDP growth in February, somehow discouraged the GBPUSD bulls but did not turn them away from buying the pound. Let us discuss the Forex outlook and make up a trading plan.

Fundamental pound forecast for six months

For most of March-April, the pound was a top G10 performer, as the performance of the UK economy was significantly better than expected. However, as soon as the IMF reminded about the recession, and the actual data suggested the stagnation in February, the GBPUSD bulls slowed down. The pair is not growing as fast as the Sterling fans would like.

The International Monetary Fund still believes that the UK economy will enter a recession in 2023, shrinking by 0.3%. This is much better than the January forecast of -0.6%, but still the worst result in the G7. Germany will also face a recession, dropping by 0.1%. The main reasons are still high inflation, the aggressive tightening of monetary policy by the Bank of England, as well as the government’s struggle to restore the reliability of fiscal discipline.

IMF forecasts for G7 economies


Source: Financial Times.

The Treasury will go with a fiscal discipline worse than the Office for Budget Responsibility expects, according to the IMF. In particular, the UK will reach less than a 3% budget deficit to GDP later than OBR predicts.

Therefore, the International Monetary Fund is still full of pessimism. In addition to zero GDP growth, a 10.4% inflation indicates stagflation, discouraging the GPBUSD bulls.

IMF and OBR forecasts for UK budget deficit

Source: Financial Times.

I believe the sterling uptrend has slowed but hasn’t turned down. Traders still have the opportunity to buy sterling at a favourable price. Official GDP data for January was revised up from +0.3% to +0.4%, suggesting the UK economy will avoid a recession in the first quarter. The pessimistic forecast of the Bank of England did not come true, and the lower expectations, the more opportunities.

Chancellor of the Exchequer Jeremy Hunt criticized the IMF’s gloomy forecasts at the fund’s meeting in Washington. In his opinion, the UK economy will show a higher performance than the IMF expects.

The GBPUSD bulls’ indecisiveness is also explained by the expectations of Andrew Bailey’s speech on monetary policy. A few days ago, Chief Economist Huw Pill’s speech turned out to be hawkish, so investors expect the BoE governor to sound cautious. Derivatives signal that at its May meeting, the BoE has a 75% chance of raising the rate by another 25 basis points to 4.5%.

GBPUSD trading plan for six months

Of course, the GBPUSD is also rising because of a weak US dollar. Investors are not willing to buy the greenback because of a soon end to the Fed’s monetary tightening cycle, a cooling US labour market, and a slowdown in inflation. Nonetheless, the sterling itself is pretty strong. I keep my forecast of the pair’s growth to 1.3 by the end of 2023. I recommend buying the GBPUSD on the corrections.

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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