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Below is views on Currency Update by Heena Naik, Research Analyst - Currency, Angel One Ltd

Overall trend of the Sterling Pound, in the first half of 2023, has been mostly bullish with two major obstructions in Mar’23 and May’23 that gave a bearish jolt to the currency. Fall in Mar’23 was mostly due to fears around rising US interest rates that smashed global risk sentiment while May’23 was governed by US banking and debt crisis.

Having said that, despite the two major debacles in global arena, Sterling Pound has been holding its horse high on expectations that the UK economy has been performing better than many had feared. Investors and experts were fully convinced that UK will be hit badly by recession as the country was still reeling with the aftereffects of Brexit, Covid-19, Russia-Ukraine geo-political crisis, UK political chaos, higher natural gas prices, higher inflation, and global recession.

Despite all of these, experts believe that the economic condition of United Kingdom is all set for recovery on back of host of robust economic dataset releases like GDP, manufacturing, and jobs data along with a fall in the price of natural gas and broad weakness in the US Dollar Index. This benefited the Sterling Pound. Both GBPUSD Spot and GBPINR Spot moved in the bullish arena, touching the higher levels of 1.2679 and 103.82 respectively.

From the above chart it is quite visible, that the Britain’s economy is on the revival path. The first quarterly estimate of UK Real GDP increased by 0.1% in the 1^st quarter i.e., Jan-Mar 2023. In output terms, the services sector grew by 0.1% on the quarter driven by increases in information and communication, and administrative and support service activities; elsewhere, the construction sector grew by 0.7% while the production sector grew by 0.1%, with a 0.5% growth in manufacturing. In expenditure terms, household consumption showed no growth in the quarter, while there was a positive contribution from gross fixed capital formation.

In fact, the Bank of England said it no longer expected the U.K. to enter a recession this year. Even the IMF felt that the UK economy was expected to avoid a recession in 2023 after it sharply upgraded its growth forecast helped by resilient demand and falling energy prices. It now expects the UK to grow by 0.4% in 2023, whereas last month it forecast the economy would contract by 0.3%.

With regards to inflation, the country has been slowly shedding off the excess consumer prices slowly and steadily. Annual consumer price index (CPI) inflation decreased from 10.1 percent in Mar’23 to 8.7 percent in Apr’23 driven by price decreases in housing and household services specifically gas and electricity. However, on the macro level, the country still must come to its pre-pandemic levels.

BoE’s committee member Catherine Mann said that Britain's underlying inflation relative to the main measure of price growth was proving harder to tackle than in other countries. "The gap that I have in my country is more persistent than the gaps that we see in either of my neighbours, the U.S. or the euro area," Mann said in a policy discussion. The BoE has already raised rates around 12 times since December 2021 to control the rising prices.

Having said that, the price trend of Sterling Pound still is expected to remain bullish in the near term. GBPINR Spot (CMP: 102.23) is likely to hit 104-mark. Revival in economic indicator of UK along with persistent US debt crisis is likely to keep the US Dollar Index with the bears in turn benefitting the Pound currency.

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