GBP to USD prediction 2020: is the pound going to rally?
The GBP to USD prediction for 2020 is potentially looking more upbeat following the election result but there are still threats on the horizon for the pound.
Many analysts have been holding off from making a GBP to USD prediction for 2020 and with good reason. December’s dramatic election in the UK created a significant amount of uncertainty and experts wanted to wait and see where the chips fell.
To get an indication of what the forex markets wanted, take a look at how the pound reacted when an exit poll suggested Boris Johnson would secure a comfortable Conservative majority, with Labour on track to suffer its worst performance in more than 80 years. Sterling shot up by two cents and was trading around $1.35 after the result – that’s the highest level since May 2018. Such a jump was forecast by several major analysts, including Citibank.
The pound has cooled slightly to $1.33, effectively having the gains made on election night. Now, analysts are beginning to deliver their GBP to USD forecast for 2020. It’s fair to say there are still many variables that could stop sterling from strengthening further – Brexit hasn’t gone away and the dollar has the potential to rebound if the US and China end their bitter trade war decisively.
Bizarrely, despite all of the political drama, the pound is actually set to end 2019 as the world’s best-performing major currency. But what lies ahead for the pound to dollar exchange forecast in 2020?
GBP to USD prediction 2020
The question now on the lips of most in the forex markets is what Boris Johnson plans to do with his parliamentary majority, which he described as “stonking” on the steps of 10 Downing Street. The Queen’s Speech, which is due to take place before Christmas, will give analysts a clearer idea of the PM’s legislative agenda. Close attention is also being paid to a rumoured cabinet reshuffle and an increase in the number of ardent Eurosceptics in Johnson’s top team could offer an indication as to the type of Brexit that he intends to deliver.
Although it is likely that the UK will leave the EU at the end of January, complicated negotiation still remains. Johnson has repeatedly promised that an agreement on the UK’s future trading relationship with the bloc will be reached by December 2020. This is an ambitious deadline and some analysts believe it may need to be extended, but any prolongation is likely to weigh heavily on the pound to dollar exchange rate forecast.
Some, such as the Mitsubishi UFJ Financial Group, believe GBP’s performance “may be as good as it gets for now”. Its analyst, Derek Halpenny, believes that sterling is unlikely to advance further as 2020 gets under way because recent good news has already been priced into the currency. He added that 2020 could see the GBP being judged more on economic fundamentals such as GDP growth. Investors are keeping a beady eye on developments in Threadneedle Street, where a new Bank of England governor is being selected to replace Mark Carney.
The bulls and bears
There are bullish forecasts out there – from investment banks such as HSBC Holdings and Morgan Stanley – which predict that $1.40 is achievable for the GBP if the UK’s rather lacklustre economic data improves and Johnson manages to make meaningful progress around the negotiating table in Brussels. A sunnier outlook could prove instrumental if the pound has any chance of continuing its rally into a brand-new decade. Many analysts also maintain that the pound has been undervalued against the dollar by about 20 per cent ever since the vote to leave the EU back in 2016.
Invesco Investment Solutions portfolio manager Alessio de Longis told Bloomberg: “Pound strength will continue fundamentally for years to come. Capital inflows coming back to the UK now will support the pound. And it will benefit from a slowly changing tide in favour of non-US assets.”
Others are more pessimistic, and say their long-term GBP to USD prediction spells bad news for sterling. Analysts at Llewellyn Consulting believe that a currency crisis could be looming for GBP given how the UK has a high balance of payments deficit, which is where a country imports more than it exports. The government deficit is also high, with public spending outweighing tax revenue to a tune of 4 per cent of the entire country’s GDP.
Long-term pound-to-dollar prediction
Analysts at Citibank have also pointed out that Britain’s election result potentially provides a worrying insight into long-term threats to the union of England, Wales, Scotland and Northern Ireland. The continuing push for Brexit is likely to alienate Scotland and Northern Ireland as voters in both countries voted overwhelmingly to remain in the European Union.
The Scottish National Party, which won 48 out of 59 seats in Scotland, says it has secured a mandate to hold a second referendum on whether the country should break away from the rest of the UK. This battle for independence will undoubtedly weigh heavily on GBP/USD, especially if the SNP is successful.
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