British Pound Trades on Mixed Sentiment on Friday

Better-than-expected home prices originally caused the British pound to react favorably, but markets rapidly turned against the currency as investors realized that the UK housing industry is slowing down both YoY and MoM.

Due to reduced demand from the UK public, higher interest rates have unavoidably been pulling down property prices. The pound’s gains in Q1 2023 may be constrained by worries about a UK recession, particularly if the property market worsens.

Less home demand should potentially result in weaker inflation and a more dovish Bank of England, which would have a negative influence on the pound. In the event of a recession, the USD will use its status as a safe haven to entice investors away from the UK economy, leaving cable vulnerable to any future negative effects.

British Pound Records Worst Fall Since 2016

Meanwhile, in 2022, the British pound experienced its worst year since the 2016 Brexit vote, falling by about 11% to $1.2, as a result of political unrest, an overall gloomy forecast for the economy in 2023, and aggressive Fed policy that increased the value of the US dollar.

After Liz Truss’ government’s projected mini-budget and tax cuts alarmed investors, the pound fell to a record low of $1.06 in September.

Since then, the pound has rebounded under Rishi Sunak’s leadership as prime minister, but it is still under significant pressure due to the recession that is approaching and the Bank of England’s perceived dovishness in comparison to its rivals.

The Dollar Is Struggling As Well

In other news, on the final trading day of a year marked by Federal Reserve rate hikes and concerns over a dramatic slowdown in the global economy, the dollar dropped on Friday but was still on course for its biggest yearly gain since 2015.

The dollar index (DXY) was down roughly 0.3% on the day at 103.720 due to lesser liquidity brought on by vacations.

Since March, the US Federal Reserve has increased interest rates by 425 basis points in an effort to rein in spiraling inflation.