The parity rate between the Great Britain pound and the US dollar is not something that many traders consider as a proximate possibility. Compared to the probability of the EUR/USD parity, the one for GBP/USD looks to be quite low even now, after its decline by 14% in 2016.
The British pound has suffered greatly last year. The Brexit referendum resulted in a huge sale of GBP/USD. The downtrend that ensued is still active today, half a year after the event. However, the
But what does it mean? Does this predisposition of the pound to weaken against the US dollar let us deduce that GBP/USD is heading to parity soon?
Although the pace of its decline is lowering, the currency pair is still in a clear downtrend. The reversal is certainly possible in case the price fails to reach its next lower low below the major support level near 1.1950:
A lot will depend on how the situation with the Brexit progresses. The “soft Brexit” option, which involves retention of some form of free trade between the UK and the EU, would be much milder on the pound than its “hard Brexit” alternative. The Bank of England was quite optimistic in its latest projections regarding the UK economy and the course of its monetary policy. However, with no rate cut expectations in the market, it will now be easier for a surprise interest rate reduction or a similar monetary action to affect the pound adversely.
Personally, I believe that GBP/USD has still a long way to parity. Even if it embarks on this way, losing 20% of value in a year without such a disruptive event as the Brexit vote on the horizon, looks improbable to me. I expect GBP/USD stay well above parity in 2017. And how about you?
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