The GBP/USD price is hovering near the lowest level since 1985 as investors reflect on the new British government. The pair slipped to a low of 1.1447, which was about 17% below the highest level this year and 45% below the highest level in 2008.
Lizz Truss new administration
The GBP/USD price has been in a strong downward trend in the past few months as concerns about the British economy continue. Analysts believe that the economy is staring at the steepest recession as the cost of energy and doing business rise.
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Therefore, Lizz Truss, the new prime minister has a lot of work to do, especially on the soaring energy prices. Analysts believe that she will unveil a new program to cushion households from the surging gas prices.
This process could entail spending over 200 billion pounds to subsidise gas prices in the coming months. While these measures will help to slow inflation in the near term, the impact on the country’s debt will be dire.
According to the Office of National Statistics (ONS), the UK has a total debt of over 2.33 trillion, which is equivalent to about 99.6% of the total GDP. Unfortunately, the situation will continue rising considering that the country’s budget and trade deficit is rising.
The GBP/USD forex price dropped as UK Gilt yields rose. The yield of the 10-year rose to 3.06%, which was the highest level in years. This increase was mostly because of the view that the new administration will increase government spending and lower taxes.
Meanwhile, economic data showd that the Halifax House Price index rose from -0.1% to 0.4%. On a year-on-year basis, prices moved to 11.5% in August from the previous 11.8%. This is a sign that there is still more demand for homes.
GBP/USD forecast
The two-hour chart shows that the GBP to USD exchange rate has been in a strong downward trend in the past few weeks. It has moved below the important support level at 1.1757, which was the lowest level on July 14. This price was also the neckline of the head and shoulders pattern.
The pair has moved below the 25-day and 50-day moving averages. Therefore, the pair will likely continue falling as sellers target the next key support at 1.1400. A move above the resistance at 1.1560 will invalidate the bearish view. In the long term, a drop to parity cannot be ruled out.
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Source: https://invezz.com/news/2022/09/07/gbp-usd-forecast-sterling-could-crash-to-parity-in-2022/