GBP/USD weathered the fallout from Brexit, central bank policy and geopolitical tensions in 2023, culminating in a cautious but hopeful recovery.
Risks and opportunities to watch in 2024
Heading into 2024, several key factors will shape the trajectory of the GBP/USD exchange rate:
central bank policy
In a major move, the Bank of England held interest rates at 5.25% for the third consecutive time in December 2023 after 14 consecutive hikes. The Monetary Policy Committee (MPC) delivered a split decision, voting 6-3 against a proposed 0.25% interest rate hike.
Even though inflation is above the 2% target, the Monetary Policy Committee plans to maintain higher interest rates to gradually bring inflation back to desired levels. Likewise, the Federal Reserve decided to hold interest rates steady at 5.25% – 5.50% on December 13, 2023, marking the third consecutive meeting without an interest rate adjustment.
The move signals the Fed‘s assessment that inflationary pressures are beginning to subside, suggesting the pace of future interest rate hikes may slow. Still, the Fed remains open to further rate hikes in 2024 if inflation trends not as expected.
Growth drivers: The UK’s ability to avoid recession and promote sustainable growth is likely to boost GBP. However, the currency could weaken against the US dollar if it faces a more severe recession.
Brexit and trade relations: Smoother trade relations with the EU and a resolution to the Northern Ireland Protocol dispute could strengthen the pound. Conversely, rising Brexit tensions could have a negative impact on the currency.
Ukraine Conflict: The impact of the ongoing war on global energy and food markets is a key risk factor. An escalation or expansion of the conflict could lead to risk aversion, favoring the dollar over the pound.
China Economic Outlook: China’s growth trajectory is critical to global trade dynamics. A sharp downturn in the US and UK economies could have a negative impact on the dollar and pound.
UK leadership stability: The effectiveness and stability of Rishi Sunak’s government will be crucial. Any policy shifts or government instability could impact market confidence and GBP valuations.
U.S. Election Updates: The upcoming 2024 U.S. presidential election and the prospect of a divided government could trigger market volatility that could impact the U.S. dollar and pound.
2024 Technical Assistance Forecast
As of now, GBP/USD is trading at 1.2815, showing resilience amid market volatility. The $1.1986 pivot point is a key mark that signals a possible shift in market dynamics.
Immediate resistance is at $1.3168 with further caps at $1.4309 and $1.5719. On the other hand, support is found at $1.0970, $0.9888, and $0.8905, offering retracement levels in case of a bearish scenario.
The relative strength index (RSI) is hovering around 52, indicating a balanced but cautiously optimistic market sentiment. The level is just above the neutral 50 mark, indicating a mild bullish bias, but one needs to be wary of any changes.
GBP/USD’s 50-day exponential moving average (EMA) currently sits at $1.2773, just above that trendline, suggesting a bullish trend in the short term. This consistency suggests that the pair is experiencing some upward momentum.
One chart pattern worth noting is the descending trendline with resistance at $1.31683. Sustained closes below this level are likely to maintain bearish pressure, but a break above this level could signal a shift to the bullish trend in 2024.
All in all, the overall trend appears cautiously bullish, pending a break above the $1.3170 threshold. If GBP/USD holds above this level, it could signal further gains in the year ahead.
However, the pair remains at a critical juncture, with potential changes in central bank policy, geopolitical events and domestic economic indicators being key determinants of its 2024 trajectory.