Pound sterling (GBP) forecasting and predictions
British pound sterling exchange
rate forecasting strategies
Did you know the pound sterling, commonly known as the British pound, is the oldest currency traded on foreign exchange markets and amongst the top four most traded currencies?1 It’s also one of the five currencies that form the basis for the Special Drawing Rights (XDR), a reserve of assets created by the International Monetary Fund (IMF).
Please keep in mind that OFX does not provide personal advice or specific exchange rate forecasts and predictions; however, below we share some general considerations you can use when evaluating forecasts and making your own decisions regarding the best time to transfer your money internationally.
Some key considerations in GBP forecasting
When attempting to forecast the movement of the pound exchange rate, investors may take into account these country-specific factors:
The Consumer Price Index (CPI)
The CPI report reviews the change in prices for a variety of items and services (food, medicine, transportation) and averages them to determine how they affect the cost of living. The CPI report may influence the Bank of England’s (BOE) monetary policy relative to inflation and can also influence exchange rates as well
The 2016 UK referendum on European Union (EU) membership known as ‘Brexit’, which ended in a vote to leave the EU, may have large-scale ramifications on immigration and trade relationships in the years ahead. In the immediate aftermath of the vote, the pound hit a 31-year low against the US dollar and the AUD/GBP was trading in the low AU$ 1.70’s. Moving forward, if the UK loses its status as Europe’s financial center, such an event could inhibit secular growth.2 When reviewing GBP forecasts, it’s important to be mindful of upcoming policy announcements
While the price of gold is set twice daily in London, it is traded in US dollars and has traditionally been used as a hedge against US dollar weakness. Gold is a primary export for the UK accounting for almost 8% of exports, and gold prices should be considered when reviewing pound sterling forecasts
Quantitative Easing (QE)
Before the financial crisis of 2008, central banks used interest rates to keep inflation within acceptable targets. In 2008, that wasn’t enough. QE is a relatively new monetary policy intended to increase the money supply by increasing capital for financial institutions. During QE, the Bank of England buys government (or other) securities in an attempt to bolster lending and liquidity. QE policy can have an effect on investor confidence and GBP currency forecasts.
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