Pound and Dollar parity strongly on the cards: After today's all-time low, is Sterling the new Lira?

Monday 26 September 2022 11:59 am

Sterling is getting absolutely pounded today in this week’s trading, and traders have started things exactly where they left off on Friday. 

The Sterling looks like an emerging market currency, especially when you look at the price of the British Pound a few months ago and compare it to where it is now.

Bears are the only ones who are in control of the price, and bulls are simply nowhere to be seen.

However, as we march towards the European session, “it seems like things are a little worse as compared to the Asian session when the price of the GBP/USD moved towards the 1.03 price level,” commented Naeem Aslam, chief market analyst at AvaTrade, this morning.

This current price, which is off the lows of the current session, is still likely to change its direction, Aslam stressed.

“This is because the reality is that the traders have lost their trust in lawmakers who are steering the government,” he explained.

In addition, Aslam said the BOE has “made mistake after mistake, which has further shattered the confidence in Sterling.” 

“The reality is that the cost of living crisis is going to become even worse as the currency has fallen this much.”

Analyst Naeem Aslam

“I believe that the GBP/USD pair could easily reach parity this week, if not in the coming days, given the current momentum that we are experiencing in the market,” Aslam said.

In order to save the currency from a huge disaster, the Bank of England is now likely to increase the interest rate by a full percentage point, and it is highly possible that the Bank of England does this in an unprecedented fashion, he said.

“An unexpected announcement is highly anticipated from the Bank, and traders should remain cautious about this,” Aslam stressed.

Shorting Sterling

Shorting the Sterling is the most popular trade right now, and there is a strong possibility that if and when the Bank of England increases the rate, the market may see an immensely strong rally for the Sterling.

In all of this pessimism, there is one silver lining for traders and investors, and that is given the weakness in the British Pound, we may see foreigners buying property in the UK as the currency has depreciated that much. 

“For many, this could be once in a lifetime opportunity, and it is likely that we may see several headlines popping up in the coming days from different estate agents, and that could really serve as a catalyst to change the current bearish path,” Aslam said.

£45bn in tax cuts only the start

In terms of policies, the Chancellor said over the weekend that he is not done with his fiscal policies to save the UK from its misery as he still has other support to announce.

From these comments, the tax cuts of £45bn are only a start, and there is a lot more to come.

The main reason behind the current fall in Sterling is traders losing their confidence in the UK’s ability to pay its debt as the debt to GDP ratio continues to increase.

Cutting taxes and increasing spending by borrowing more reduces the value of the currency in the short term, Aslam said, “but the UK has little choice now to do anything else but this.”