What was once impossible might now become reality. Now, GBP/USD parity is within reach.
- The British pound has never traded at parity with the US dollar since the beginning of known time. This is a big story! These traders and investors are closely monitoring the possibility that GBP/USD could converge because they are aware of how significant it would be if it did.
- For the first time since 1985, the British pound fell below $1.14 due to the combination of a strong dollar and recessionary forecasts.
- Sterling hit a new 37-year low at $1.135 at 8:50 a.m. London time before marginally recovering to $1.146 by late afternoon. It came after data indicating a 1.6% decline in August retail sales were released, which analysts at ING said indicated a “deteriorating consumption picture.”
The euro, which is 19 of the 27 members of the European Union’s official currency, has lost value during the last year or so. For the first time since 2002, it matched the value of the dollar on July 13.
Will we see a GBP/USD parity?
A new chapter in the history of finance would begin if the GBP/USD pair approaches parity.
Henry Drysdale, head of currency options trading at Natwest Markets, warns investors to get ready for more pound decline as volatility rises. Natwest does not focus on the barely escaped dollar-sterling parity when advising clients, but they do suggest looking for protection against it in the options markets.
In his article, Drysdale stated, “We believe the market hasn’t yet fully priced in a premium for the increasing uncertainty for the months ahead.”
According to options markets, there is “a more than 25% likelihood” that the GBP/USD exchange rate will reach parity within the next 12 months, Drysdale continued. That is more bearish than Bloomberg’s forecast, which predicts a 19% likelihood that the pound will reach parity in a year and is based on volatility calculations and economist assessments.
The rising dollar is attractive for U.S.-based investors. Let’s see what will happen with GBP. USD? The USD is looking unstoppable and is actually a safe haven currency.