GBP/USD Forecast: British Pound Continues to Struggle – 07 March 2022
Ultimately, this is a market that I think will continue to be one that you can sell on short-term rallies that show signs of exhaustion.
The British pound fell again on Friday to reach down towards the 1.32 handle. That is an area that has been significant support in the past, and so far, it has held. That being said, if we do get a huge “risk-off move”, it is very likely that the British pound will lose ground to the greenback.
The greenback is the favored currency of the world right now, as we are struggling to find any real growth, and the Federal Reserve continues to look very hawkish. The jobs number coming out stronger than anticipated on Friday did not help at all. This only reinforces the idea that the Federal Reserve will have to be rather aggressive with its monetary policy, which strengthens the US dollar even further.
The Bank of England is rather hawkish as well, but as long as there are a lot of concerns around the world, it does make sense that the US dollar will attract attention. I believe at this point it is only a matter of time before money goes looking towards the relative safety of the US Treasury markets, or just dollars themselves. The 1.32 underneath will be rather significant support, but if we break down below there, it is likely that this market will unravel and go to the 1.30 handle. Ultimately, this is a market that I think will continue to be one that you can sell on short-term rallies that show signs of exhaustion. There are simply far too many problems around the world right now to think that the US dollar will get sold off from a longer-term standpoint.
That being said, you should also use this market as an opportunity to show whether or not there is a risk appetite out there because you can consider the British pound as the “second-best currency” at the moment. The commodity currencies have done fairly well recently, but longer term they will struggle to keep these gains as there is so much fear out there. It would not be surprising at all to see a significant amount of downward pressure going forward.