In 2024, the political landscape has notably influenced the foreign exchange market. The victory of the Labour Party in the UK general election was a key factor in the pound’s strength. The US dollar benefited from the Trump trade, while the euro was harmed by the political crisis in Europe. Let’s discuss these topics and make a trading plan for the GBPUSD pair.
The article covers the following subjects:
Major Takeaways
- The Fed and BoE monetary expansion allows the GBPUSD pair to consolidate.
- The pound retains its chances to become the best currency on Forex in 2024.
- The pound’s trajectory will be determined after the ECB and Fed meetings.
- The GBPUSD is trading near the critical level of 1.275.
Daily Fundamental Forecast for Pound Sterling
As the new year approaches, financial market participants are engaged in speculation regarding which currency will demonstrate the most robust performance in 2024. The question on many investors’ minds is whether the pound or the US dollar will perform better. The British pound has historically demonstrated resilience, driven by robust GDP growth, the Bank of England’s cautious approach, and a stable political environment. However, in November, the US dollar outperformed its British counterpart due to the Trump trade. However, its retreat has prompted renewed optimism among GBPUSD bulls. Will their dream become a reality?
The pound is currently a currency of choice amidst a competitive landscape. Hedge funds have accumulated the largest number of net long positions on the pound, second only to the US dollar. The UK currency has reached an eight-year high against the euro, driven by accelerated GDP growth, political stability, and market expectations of a 77-basis-point repo rate cut in 2025, compared to a 150-basis-point cut for the ECB deposit rate.
Speculative Positions on Major World Currencies
Source: Bloomberg.
In the context of ongoing political crises in Germany and France, the ascendance of the Labour Party in the UK has made it relatively straightforward to secure parliamentary approval for the budget with fiscal stimulus. The economy has an opportunity to accelerate, which, when coupled with the Bank of England’s decision to maintain high interest rates, allows Bank of America to forecast the EURGBP pair to drop to 0.8 and the GBPUSD pair to increase to 1.38 in 2025. The consensus forecast of Bloomberg experts for these currency pairs is 0.82 and 1.28, respectively.
Although Andrew Bailey hinted at four acts of BoE monetary expansion in the coming year, market expectations are for three. This is comparable to the extent of the Fed’s monetary policy easing, which allows the GBPUSD pair to consolidate.
Market Expectations on Central Bank Rates
Source: Bloomberg.
Indeed, the US dollar has a wild card named Donald Trump, whose fiscal stimulus and tariffs will further increase the divergence in economic growth between the US and the rest of the world. Nevertheless, there is a possibility that trade wars will not hurt the UK, with which the US had a foreign trade surplus of $8.2 billion in the first nine months of the year.
In addition, it is uncertain which, if any, of his campaign promises Donald Trump will fulfill. Furthermore, it is unclear whether he will pursue negotiations as an alternative to tariffs. In any case, the inauguration will take place only in January, and until then, the GBPUSD bulls have an opportunity to make some gains.
Daily GBPUSD Trading Plan
The best-performing Forex currency will be determined following the FOMC meeting. Meanwhile, the euro’s rebound following the ECB meeting may bring the pound closer to the title of the year’s top performer. In this scenario, one may consider opening long positions on the GBPUSD pair, adding them to the ones opened at 1.275. Conversely, the EURUSD pair’s decline will put pressure on the pound, presenting an opportunity to open short trades with the targets of 1.267 and 1.259.
Price chart of GBPUSD 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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