GBP may recapture lost momentum in H1 2022

Written by Kunal Sawhney, Kalkine Media

The Great Britain pound (GBP) is expected to partly regain its strength against the United States dollar (USD) in the first quarter of 2022, provided the Downing Street administration manages to amplify the volume of exports, while allowing the domestic businesses to operate at full functional capacity.

The pound sterling continued to rise in the first five months of the present calendar year. The currency started declining against the greenback after the Delta variant became the dominant strain in the UK, triggering a fresh wave of infections with the rate of hospitalisation crossing the peak seen during the third national lockdown in January-February period of 2021.

On the other hand, the continuous improvement in the greenback’s value with the US dollar index, the metric that tracks US dollar’s performance against a basket of six currencies, appreciating month-after-month boosted the prospect for the US dollar, effectively placing it ahead of the pound sterling.

According to the latest data available, the US dollar index moved up sharply from the sub-90 levels to a mark above 96 in just six-seven months, right from the time when the UK experienced the fresh wave of Covid infections perpetrated by the Delta variant.

The ever-evolving course of coronavirus has been the major factor that has handheld the markets, as well as the currency price movements since the beginning of pandemic.

The present calendar year, touted as the year of recovery from the Covid-steered bottoms, has apparently failed to lift the prospects for domestic currency as the cumulative aftereffects of Brexit and extended set of operative hurdles faced by most of the businesses in services, as well as manufacturing space have translated into a moderate growth in the national economic output.

The counter-protective measures implemented by the government of the UK have been thoroughly appreciated by the investors, with the plan of phased exit from lockdown restrictions and other social distancing norms constructively helping the commercial settings to rebuild better in a gradual manner.

However, the stage four of the phased easements delaying by a month increased the apprehensiveness of market participants. The following activities including massive pinging exercise by the National Health Service (NHS), mandating all the individuals in proximity of people infected with the Delta variant and the suspected cases to self-isolate furthered the market-wide shortage of staff, leading to an acute crisis of skilled workforce.

As a result of this, the businesses that were looking forward to recapture the lost trade during the disruptive months due to the pandemic restrictions and the government-led mandate to operate in a curtailed manner, were not able to resurrect the operations on the full scale.

Moreover, the inability of enterprises to rehire and deploy an adequate number of skilled workers increased the worries, effectively slowing down the pace of economic recovery. The cumulative challenges in the business environment have been primarily responsible for a subdued performance of local currency against the greenback.

The value of pound sterling hasn’t depreciated much against the euro, as it has plunged against the US dollar. The GBP vs EUR pair continues to hover near its 52-week high, as most of the European countries are still grappling with the immense rise of cases linked to the Delta variant and the recently emerged Omicron variant.

A handful of countries reintroducing mini lockdowns and bringing back some of the pandemic restrictions has weakened the value of euro against pound sterling. In the near future, the pound is set to remain resilient against the euro, given the persisting uncertainty and increased worries with regards to the extent of damage due to the Omicron variant and the resultant aftereffect of pandemic-induced curbs, tightening of border control measures and curtailing the business operations.

As far as the value of the pound against the US dollar is concerned, the domestic currency is likely to bounce back in the first half of next year. The collective response of the government against the coronavirus, alongside the measures taken by the healthcare administration to contain the boiling rate infections will remain some of the key factors that can help GBP to regain its multi-month high peak against the green back.

The Bank of England had fixed a currency conversion rate of 1.3410 USD against a unit of pound sterling on Thursday, 23 December, while the spot exchange rate for the GBP vs EUR pair was fixed at 1.1858. According to BoE’s historical exchange data, the GBP vs USD pair has hit a 52-week high and 52-week low of 1.4211 and 1.3206, respectively.

About Lisa Baker, Editor 2359 Articles
Lisa Baker is the Editor of Always Finance, and writes about Business, Finance Technology and Healthcare. Lisa is also the owner of Need to See IT Publishing.