Our panel of experts shares their predictions on the course of the pound and its strength against the dollar and the euro.
Exchange rates measure the strength of a currency against other currencies and are determined by base rates, trade balance and fiscal policy. The recent base rate rises, the Northern Ireland Protocol and Brexit all affect the British pound, creating uncertainty over the future value. You may even find yourself trying to avoid foreign transaction fees when spending abroad.
Finder consulted a panel of academics, economists and currency experts and asked for predictions on the British pound against the US dollar and the euro over the course of 2023.
Quick overview
By the end of 2023, 4 out of 6 (67%) panellists believe the pound will strengthen against the dollar.
5 out of 6 panellists (83%) believe the pound will weaken against the euro by July 2023 (vs the rate of EUR/GBP £0.88 on 27 February 23).
5 out of 6 (83%) panellists believe the Northern Ireland Protocol needs to be resolved in order to have a strong pound against the euro.
All panellists (100%) noted that the pound’s strength against the dollar hinges on the approaches of the Bank of England and the Federal Reserve.
Best-case scenario prediction for USD/GBP is £0.76, worst-case scenario prediction is £0.94, by the end of 2023.
Best-case scenario prediction for EUR/GBP is £0.83, worst-case scenario prediction is £0.96, by the end of 2023.
Meet the panel
Full Name
Organisation
Title
Gulcin Ozkan
Kings College London
professor of finance
John Wilson
University of St. Andrews
professor of banking and finance
Jon Ostler
finder.com
ceo
Keith Kilcourse
finder.com
money transfer expert
Alexander Tziamalis
Sheffield Hallam Univeristy
senior lecturer in economics
Jonas Goltermann
Capital Economics
senior markets economist
Pound to dollar predictions for 2023
Our expert panel predicted the value of the dollar against the pound in July and the end of 2023. Panellists are split on the short-term outlook for the pound, with 50% predicting it will strengthen by July 2023 (vs the rate of USD/GBP £0.83 on 27 February 23). The average prediction for July 2023 was USD/GBP £0.84.
By the end of 2023, 4 out of 6 (67%) panellists believe the pound will strengthen against the dollar. The average prediction for the end of 2023 was USD/GBP £0.81.
All panellists noted that the pound’s strength against the dollar hinges on the interest rate approach of the Bank of England and its US counterpart, the Federal Reserve.
Our expert panel predicted the value of the euro against the pound in July and the end of 2023. 5 out of 6 panellists (83%) believe the pound will weaken against the euro by July 2023 (vs the rate of EUR/GBP £0.88 on 27 February 23). The average prediction for July 2023 was EUR/GBP £0.92.
By the end of 2023, half of the panel thinks the pound will strengthen compared to its current rate, while the other half thinks the pound will weaken. The average prediction for December 2023 was EUR/GBP £0.91.
5 out of 6 (83%) panellists believe the Northern Ireland Protocol needs to be resolved, in order to have a strong pound against the euro. It was further noted that the euro may decline in value due to fiscal issues in southern European countries.
Our experts believe that the pound could be close to equalling the value of the dollar by the end of 2023, with an average worst-case scenario of USD/GBP £0.94. If this were to happen it would see the pound weaken by 13% vs the current value of £0.83 (27 February 2023).
All panellists noted the importance of a “higher for longer” approach by the Bank of England compared to the Federal Reserve, for the pound to fare better against the dollar. Senior lecturer in economics Alexander Tziamalis, outlines the best case scenario: “BoE interest rates rise faster than Fed interest rates and then fall less quickly.” According to Keith Kilcourse, money transfer expert at Finder: “The Fed could be forced to lower interest rates by Q4 of 2023 and the US dollar will sell off as a result”, showcasing the important role of the Federal Reserve’s actions on the course of the USD/GBP.
A weakening of the pound against the dollar would be the result of: “Weak central bank intervention and failure by the UK government to follow through on fiscal plans”, according to professor of banking and finance John Wilson.
The average best-case scenario would see the pound strengthen to USD/GBP £0.76. This would see the pound strengthen by 8% vs the current price of £0.83 (27 February 2023).
Our experts believe that the pound could almost match the value of the euro by the end of 2023, with an average worst-case scenario of EUR/GBP £0.96. This would be a 9% decrease in value against the value of £0.88 as of 27 February 2023.
All panellists agree that resolving the Northern Ireland Protocol is key to a strong pound against the euro, however, the fiscal situation in southern Europe is an additional contributing factor. Jonas Goltermann, senior markets economist, explains: “renewed concerns around Italy’s fiscal policies could lead to significant downward pressure on the euro”.
According to professor of finance Gulcin Ozkan, the worst case scenario would require the: “UK doing significantly worse than the eurozone in fighting inflation”. Jon Ostler, CEO at Finder UK, explains that the Bank of England may be forced to cut rates due to a less resilient economy, compared to Europe: “Weak economy, employment and housing market could put pressure on BoE to cut rates faster than others”.
The average best-case scenario would see the pound strengthen to USD/GBP £0.83. This would be an increased value of 6% vs the current price of £0.88 (27 February 2023).
We asked the panellists about the preconditions for a best- and worst-case scenario for the USD/GBP in 2023.
USD/GBP best-case scenario: “BoE interest rates rise faster than Fed interest rates and then fall less quickly.”
USD/GBP worst-case scenario: “Paralysed UK government, the NI protocol not resolved with EU, recession in the UK.”
USD/GBP best-case scenario: “The UK economy rebounds strongly in the second half of 2023 and the BoE signals a ‘higher for longer’ approach to interest rates, the global environment improves but the Federal Reserve shifts towards cutting interest rates in the US, natural gas prices fall back further.”
USD/GBP worst-case scenario: “UK economy stays weak, housing market struggles, BoE shifts towards cutting interest rates while the Federal Reserve keeps US interest rates around 5% or higher. Natural gas prices rebound strongly amid renewed worries about Europe’s energy security.”
USD/GBP best-case scenario: “Robust central bank action to control inflation via higher interest rates.”
USD/GBP worst-case scenario: “Weak central bank intervention and failure by UK government to follow through on fiscal plans.”
USD/GBP best-case scenario: “This would be the outcome if the Fed slowed down its rate raising streak and the UK didn’t.”
USD/GBP worst-case scenario: “US GDP picking up much faster and UK falling behind in recovery.”
USD/GBP best-case scenario: “BoE sticks to small steady interest rate rises and waits for the US to pivot first. The Fed could be forced to lower interest rates by Q4 of 2023 and the US dollar will sell off as a result.”
USD/GBP worst-case scenario: “The BoE pauses interest rate hikes long before the US in a bid to support a struggling housing market and overall weak economy. It’s possible the Fed will be worried about the consequences of lowering rates too soon and hold off until Q1/Q2 2024.”
USD/GBP best-case scenario: “Higher for longer BoE interest rates vs the Fed.”
USD/GBP worst-case scenario: “Weak economy and employment market could put pressure on BoE to cut rates faster than others.”
We asked the panellists about the preconditions for a best- and worst-case scenario for the EUR/GBP in 2023
EUR/GBP best-case scenario: “Steady UK government, resolving the NI protocol dispute, relatively harder recession in the EU compared to the UK.”
EUR/GBP worst-case scenario: “Paralysed UK government, the NI protocol not resolved with EU, recession in the UK.”
EUR/GBP best-case scenario: “The UK economy rebounds strongly in the second half of 2023 and the BoE signals a ‘higher for longer’ approach to interest rates while the ECB signals a less aggressive policy stance. A deal around the Northern Ireland Protocol would probably help sterling at the margin, while renewed concerns around Italy’s fiscal policies could lead to significant downward pressure on the euro.”
EUR/GBP worst-case scenario: “UK economy stays weak, housing market struggles, BoE shifts towards cutting interest rates while the ECB continues to tighten monetary policy. UK-EU relations worsen further, leading to renewed concern around a Brexit trade war and/or UK fiscal policy concerns re-emerge.”
EUR/GBP best-case scenario: “Resolution on the Northern Ireland protocol and the improved function of the The Trade and Cooperation Agreement.”
EUR/GBP worst-case scenario: “Failure to resolve the Northern Ireland protocol and the functioning of the The Trade and Cooperation Agreement.”
EUR/GBP best-case scenario: No comment.
EUR/GBP worst-case scenario: “UK doing significantly worse than the eurozone in fighting inflation. The duration of Eurozone’s rate hikes is likely to be longer.”
EUR/GBP best case scenario: “Resolution found for the NI protocol, BoE clearly communicates they will hold rates higher for longer and the ECB is forced to lower rates to support weaker economies such as Italy, Spain, Portugal and Greece.”
EUR/GBP worst-case scenario: “The UK is unable to get inflation under control and raises rates too aggressively. The ECB is able to increase interest rates without causing a severe recession in Europe.”
EUR/GBP best-case scenario: “The UK economy recovers faster than EU and the NI dispute is resolved.”
EUR/GBP worst-case scenario: “Weak economy, employment and housing market could put pressure on BoE to cut rates faster than others.”
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