Sterling gains in 2023 will be hard fought

It is fair to say, 2022 was a terrible year for Sterling, since January 1st 2022, the Pound tumbled 10% against the US Dollar and Swiss Franc and 5% against others including the Euro. 

Three Prime Ministers, four Chancellors, a dithering Bank of England and inflation soaring, primarily due to the war in Ukraine, was not an environment for a post Brexit Pound to succeed in. 

The most torrid time came soon after the then Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng introduced the world to Trussonomics, with their end of September mini budget. We wrote at the time that parity against both the US dollar and Euro was a widespread conversation, and some large speculators were pushing hard for this outcome to realise gains on their huge bets.  

The crisis of a prolonged freefall of the Pound was advert with the appointment of Jeremy Hunt as Chancellor and subsequently, Prime Minister #3, Rishi Sunak. The Sunak Hunt budget of mid-November reversed Trussonomics, steading the markets perception of UK PLC. It did however copy a trick from the European Union and kicked the tougher corrections down the line, when current polling suggests we will have a Labour government.  

And for 2023? 

Whilst globally many countries face similar headwinds, economists are expecting the UK to struggle the most. A full year of recession is likely, very high inflation is only expected to tail off in the latter part of the year, the cost of living crisis and all manner of key services disrupted by strikes further dampens the mood for the public and the markets alike.  

The Sterling roller coaster of 2022 at times looked like Oblivion (™Alton Towers), for 2023 a gentler game of snakes and ladders will prevail, played by the market friendly boring duo of Sunak and Hunt, with the governor of the Bank of England Andrew Bailey joining the game on occasions. Sterling will land on a ladder square and rally only to later find a snake and lose its value again. The lows of 2022 are not expected, and any highs will likely not be too noteworthy. 

Expect calls for a general election to grow louder as the year progresses however, we expect the political turmoil of 2022 to be avoided. Potential progress on the North Ireland protocol would be Sterling positive. With gloomy forecast already a market expectation, better than expected economic performance and a subsequent change of sentiment will also buoy Sterling against other currencies  

The UK and Europe are praying for a milder winter to mitigate the high cost of energy. In the UK many households will see in quick succession, increasing mortgage costs, peak heating bills, council tax increases, ongoing food inflation, plus the stubbornly high cost of filling up a car. The cost of living crisis will dampen demand for the first five months of 2023. We are nation of spenders and there may something still left of the billions saved during covid to find outlets for in the summer months. 

Exchange rate forecasts 

Forecasters are notoriously inaccurate for any given date however a range of opinions forecasts Sterling against the US Dollar to trade between 1.1650 to 1.2650 and against the Euro 1.1050 to 1.2150 through 2023. 

Exporters have been benefiting from the depreciating pound, however alongside importers reviewing the costs being incurred and the strategy of managing currency exposure becomes even more important. As such, specialist support as provided by companies like Ascendant, can fill a gap not provided by larger financial institutions. 

For more information on how Ascendant can benchmark your current supplier and to hear about how we are reducing the cost of foreign exchange for local businesses, contact