Wondering what's in store for GBP (pound) pairs going into 2022? There are some factors that could heavily influence the currencies price action. Here's what we think is the likely outcome for GBP going forward.
Firstly, the UK's recovery has been doing the best recovery-wise as it is projected to be the fastest one to rebound since the COVID pandemic in 2020. More information on G7 can be found here. This is a big thing in the grand scope of things and justifies further bank rate raises.
Above is a YTD chart of the employment rate in the UK. Set to outpace the other six countries including the United States, Germany and Canada, we could find a strong bullish argument for the pound.
Additionally, the Bank of England decided to raise its official bank rate from 0.1% to 0.25% two weeks ago, a 0.15 bp raise. The BOE still has a 2% inflation target goal and will need further hikes to reach that. One hike is already a big step toward the recovery since other currencies like the USD are still tentative. And because the UK is expected to grow at a quicker rate than the rest of G7, we may start to see more hikes in 2022.
Below is the performance of GBP's interest rates in the past 25 years.
I think these two reasons are going to be the main drivers in the pound's recovery as analysts have high expectations for this currency for the next year. Of course, there will always be headwinds such as Brexit and the never-ending issues involved with that.
However, I do think that the UK has a big head start on everyone else which will probably be the best thing for them as they reach a full recovery. Interest rates should keep rising, but not too quickly. Along with that, bulls should hope that the recovery projections come through. If these factors continue to improve, 2022 could be the year of the pound!
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