The man who predicted the 2022 US dollar comeback now reveals… Why the GBP/USD crash is just getting started!
- Brexit is still a thorn in the flesh for the UK.
- The UK’s economic growth is slowing dramatically.
- The divergence between the Fed and BOE will widen.
Hi, I am Martin Shepard, a financial analyst who publishes on leading financial websites like Seeking Alpha and InvestingCube.
Over the years, I have helped my readers generate attractive returns across assets like stocks, cryptocurrencies, and commodities.
In May 2021, I recommended that investors should start rotating back to the US dollar index. That trade has been highly profitable as the index has jumped by 17%.
Now, I believe that the GBP/USD pair has more downside to run despite falling by 9.50% year-to-date. If you are looking for a broker to trade or invest in GBPUSD, then look no further I have teamed up with a top and regulated forex broker.
Despite regular upticks, the GBPUSD has been in a downward trend since 2007 when it rose to 2.1173. Since then, the pair has crashed by 42%.
I expect that this downward trend will continue in the next six months.
For one, Brexit is still a major challenge for the UK. The UK and the EU are still deliberating on Brexit and the situation does not look good.
The two sides have locked horns on the Northern Ireland issue. The UK has threatened a unilateral decision while the EU has warned about retaliation measures.
If the situation deteriorates, the UK economy could worsen, which will have an impact on the Bank of England.
Meanwhile, the UK economy is not doing well either. Recent data showed that retail sales have plummeted as consumer spending has eased.
Further, consumer confidence has dropped in the past five straight months. This is notable since consumer spending is the biggest part of the UK economy.
Further, consumer inflation has jumped to the highest level in more than 30 years. It is expected to rise to 7.8% this year. While the unemployment rate has slipped, real earnings are expected to fall by 2.4% this year.
Meanwhile, the UK economy slipped by 0.1% in March and it is expected that the situation will get worse if the Brexit situation worsens.
Therefore, the GBP/USD will likely keep falling as a divergence between the Federal Reserve and the Bank of England (BOE) will widen.
The BOE is expected to slow its rate-hike cycle while the Fed is expected to deliver several 0.50% rate hikes for the rest of the year.
Additionally, the Fed has hinted that it will start implementing a quantitative tightening policy. Therefore, this divergence will likely lead to more widening.
Most analysts believe that the British pound has more downside risks ahead. Goldman Sachs analysts noted:
“The potential for hawkish policy developments would weigh on the currency – GBP – given the large U.K. current account deficit.”
Another note by Capital Economics said this about the UK economy when they published their bearish view on the British pound.
“The weak pound is another inflationary source at a time when inflation is already at a 30-year high of 7pc and is heading to a 40-year high of 10pc.”
Therefore, I am convinced that the long-term bearish trend will continue in the next six months.
The next key reference level will be at the 2020 low of 1.1400. Only a push above 1.32 would negate this bearish outlook.
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