The British Pound remains one of the most popular currencies to trade and the GBP/USD pair has long been favoured by forex traders looking for high volatility and liquidity. But given recent global events, what might the future hold for GBP against its US counterpart?
Recent economic turmoil and changes to the UK’s fiscal policy have seen Sterling take a bashing on the global currency market, whilst the US Dollar has been going from strength to strength lately.
But the pound has proved its resilience many times in the past and the UK economy remains one of the world’s strongest. This has led some traders to speculate that GBP will bounce back in the future. Thus, GBP/USD remains a currency pair in high demand.
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GBP/USD Recent Price History
Let’s be real here, 2022 hasn’t been a great year for the pound against the dollar. In fact, the charts for 2022 mark a stark contrast against 2021, during which GPB more than held its own against USD. In fact, at one point sterling was trading at 1.418 against the greenback - a high it had not seen since 2017.
Things changed in 2022, as external factors placed significant pressure on the UK economy. Having started the year at a respectable 1.3590, GBP had slumped to 1.227 against USD by early May. Following the UK Government’s “mini-Budget” in September, GBP hit a record low against USD, dropping to 1.032.
There were several developments after the pound slumped to its lowest value against the dollar since decimalisation in 1971. The Bank of England stepped in and the Government itself was forced to consider damage control. However, at the time of writing, GBP was still only at 1.111.
What Does The Future Hold For GBP/USD?
The pound has had a pretty lousy year in 2022, dropping to an all-time low against the US dollar. However, it should be noted that there have been numerous unforeseen circumstances that have affected the UK economy and the pound's worth - notably the COVID pandemic and the war in Ukraine. In addition to these factors, the resignation of former PM Boris Johnson and ongoing Brexit tensions with the EU have made 2022 an unusual year for the sterling.
But what can we expect in the coming years?
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Read Also: 10 Most Important Forex Indicators For GBP
GBP/USD Price Prediction For 2025
GBP/USD price predictions for 2025 are something of a mixed bag - which is understandable given the significant volatility that we can expect. If we look at Wallet Investor, for example, it seems they are expecting the pound to continue to struggle against the dollar this year, trading at around 1.101 by December. This downward trend is expected to continue into 2023, with GBP/USD dropping to 1.094 in April. According to Wallet Investor, the highest we will see GBP against USD before 2025 is 1.106.
However, Panda Forecast is slightly more optimistic. It has GBP gaining around 6% on USD by the end of 2023, trading at around 1.147. Overall, the pound is expected to perform well and by the time 2025 arrives, Panda Forecast has made a lower prediction of 1.200 and a higher estimate of 1.278.
Another more subdued GBP/USD forecast comes from The Economy Forecast Agency. Whilst the platform is expecting the pound to gain around 5% on the dollar by the end of the year, ultimately it will generally trade much lower, fluctuating between 1.050 and 1.100 in the run up to 2025.
GBP/USD Price Prediction For 2030
Looking further ahead, predictions become increasingly more unreliable and harder to come by as no one can know how the global economy will change over the course of ten years or so. However, one thing that is worth noting is that many economic forecast agencies have speculated that the UK will drop out of the top ten global economies by 2030. If these predictions prove to be correct, it is likely that the pound will be weaker against the dollar in general - as it’s probably safe to say the US economy will still be holding the top spot by then.
The big question will be whether GBP can hold parity with the USD, or whether the currency values will be more or less reversed after 2030.
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The UK Economy Vs The US Economy
Many investors new to the forex markets may wonder why exactly the British pound holds a higher value than the US dollar - after all, the latter is the currency of the world’s most powerful economy. However, things are slightly more complicated than that. There are several factors that affect one currency’s price against another - including supply and demand, inflation, and other economic factors.
One pound has historically been worth more than one dollar and it remains that way today, but $1 is now only worth approximately $1.12, whereas back in the 1980s the pound reached as high as $1.42. In fact, going back to the start of the 20th century the pound was worth five times what it is today against USD.
But whilst the pound may have a higher face value than the dollar, it’s fair to say the latter is the stronger currency. It trades in higher volumes on forex exchanges and is the world’s reserve currency.
Today the GDP of the US is said to be around $15.68 trillion. This compares to $2.44 trillion for the UK.
What About Brexit?
Another factor that will have a major influence on the pound’s performance against the dollar is Brexit. GBP took a hit when the referendum result came in in 2016, dropping to a then-39-year low of $1.31. The pound did start to regain some ground, but there has been much speculation about the UK’s trading partnerships now it is out of the single market, with many firms and investors seeing the bloc as a safer option.
Unfortunately, COVID-19 struck in the run-up to the UK’s transition period from the EU. This plunged the global economy into chaos and made it harder for analysts to measure the effect that Brexit has had on the pound’s value.
Despite these issues, Citibank analysts noted that the pound had been “remarkably stable” given the uncertainty that surrounds the UK’s split from the block. However, the bank went on to predict that Brexit tensions could get worse before they get better, which will lead to further declines in the pound’s value against the dollar.
Government Fiscal Policy
The Government’s plans for the economy have hardly been out of the news across September and October 2022. Following former Chancellor Kwasi Kwarteng’s disastrous “mini-budget” on September 23, the pound’s value slumped as UK bond yields started to climb, prompting warnings of a mass sell-off. This also knocked investor confidence and is ultimately what led GBP to drop to a record low against the dollar.
Since the mini-budget was announced, the Bank of England has stepped in with a bond-buying program intended to stabilise the market. The Government has also been forced to u-turn on several of its policies, with Kwasi Kwarteng being replaced as Chancellor by Jeremy Hunt. This means we can expect to see new policies emerging throughout the remainder of 2022 which could have a significant effect on the value of the pound.
Where Can I Trade GBP/USD?
If you want to trade foreign currency, then there are a few things you’ll need. Firstly, you need access to a reliable exchange that can execute trades as and when you make your order. Timing can be everything when it comes to forex so you don’t want to cut any corners here. You’ll also need comprehensive charting software to allow you to track and compare currency price movements. Finally, you’ll ideally want trading tools allowing you to customise your orders - such as take profit/stop loss orders.
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Conclusion
The rate of inflation in the UK is likely to continue to rise, despite the Government introducing measures to curb soaring energy bills. Unfortunately, if inflation reaches a rate of 13%, which some economists have predicted, it would mean the UK had the highest level in the OECD. This would make the UK far less competitive and would likely weaken the pound against the dollar.
In fact, Paul Dales of Capital Economics Chief U.K. Economist Paul Dales has said that GBP will “plumb new depths” and could fall significantly by mid-2023 as political and economic uncertainty continue to dampen UK asset value.
Those looking to trade GBP/USD will need to keep a close eye on interventions from the Bank of England. Namely, how and when it will hike interest rates to try and curb inflation - and whether or not these interventions prove to be effective.
The exchange rate is also likely to be affected by the ongoing political turmoil, suggestions of another Scottish independence vote and any issues regarding Brexit and future trade deals.
There are plenty of voices of support for the pound, predicting it can gain against the dollar in the coming months. Whether these predictions pan out to be correct or not, it’s likely we will see some impressive volatility with GBP/USD and trading volumes are likely to remain high.
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GBP/USD Price Prediction FAQ
Will the pound be worth less than the dollar?
Despite being the currency of the world’s strongest economy, the dollar has always been worth less than the sterling, based on exchange values. However, whilst the pound was once worth several dollars, things have changed in recent decades and now, in 2022, the pound has slid to its lowest level against the dollar since decimalisation in 1971. Many analysts have now predicted that GBP could drop below parity with USD as early as 2023.
Where can I find GBP/USD price predictions?
Currency pair price predictions are notoriously difficult due to the myriad factors affecting them. The reality is that long-term forecasts should be approached with caution. Here at Trading Education, we consider price predictions from various sources so we can present a balanced view of what we might be able to expect from GBP/USD.
How will the pound perform against the dollar in 2022?
It’s no secret that the pound slumped against the dollar in September 2022. However, there are still plenty of economists and financial analysts that believe sterling could bounce back before the end of the year. Much will depend on the new Government's policies moving forward, as well as any interventions from the Bank of England.
How will Brexit affect the pound?
Depending on who you ask, Brexit will either see the pound surge to new heights or fade into relative obscurity in global currency markets. However, political opinions aside, finance experts and economists believe we are yet to feel the true impact of Brexit, as the COVID pandemic through global markets into disarray. As we move closer to 2023, potential trade deals and Government plans to stimulate the UK markets will largely dictate how Brexit affects the pound.
Is the dollar the strongest currency?
Sterling may be worth more than the US dollar in an exchange sense, but it's fair to say that USD is the stronger currency. There are several reasons for this, not least the high demand for the dollar due to an equally high demand for US products and services, which have to be paid for in local currency. USD is also the world’s reserve currency, meaning it is always in demand. The strength of the US treasury also helps to keep the price of the dollar relatively stable.
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