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How Brexit Will Impact The British Pound

London

It’s been over two years now since the UK decided to leave the EU.

At the time, the decision sent shockwaves throughout the world and the result to leave had an enormous impact on the financial economy, especially on the forex markets.

Fast forward to the current day and it’s less than a year until Britain officially leaves the European Union.

This article is going to focus on the current state on the forex markets and how Brexit will impact it in the months ahead.

But first, a quick look at what happened when Article 50 was passed the UK Parliament.

29 March 2017

In short, the price of GBP fell:

(Click to enlarge)

According to Business Insider, the currency dropped by 0.7 percent against USD.

The fall was because of a renewed lack of faith in the Brexit transition.

So, What’s Happened So Far In 2018?

The big picture is that GBP recovered since the shock decision to leave the EU. In fact, in January 2018, it rose to its highest price since the vote.

However, since then, and especially over the last three months, its price has fallen to levels that were seen a few days after the vote.

(Click to enlarge)

However, in terms of the present day, it’s looking a lot more positive.

Starting with interest rates, the Bank of England announced a rise in interest rates for only the second in time in a decade.

They have risen from 0.5 percent to 0.7 percent, the highest they have been since March 2009.

This has had an interesting effect on the price of GBP. At the time of writing, here is how the price of GBP has been affected since the rise in interest rates:

(Click to enlarge)

The movement between the two orange lines shows the price movements between 2 August 2018 and 22 August 2018. Related: Trump Takes Aim At Tech Giants Over Social Media Posts

There was an overall downtrend in the price but since 16 August 2018, the price of GBP has risen and could be set to continue to rise over the coming days and/or weeks.

Part of the recent rise could be due to evidence shown from Reuters’ research.

They have shown that based on information taken from banks in the top trading centres, the volume of forex trading in Britain has grown by 23 percent to a daily average of $2.7 trillion, a record number.

In comparison, the US was up by less than half, showing an increase of 11 percent to $994 billion.

This shows that London is still proving to be worthy investment hub for businesses globally and will continue to dominate the forex market.

Looking Forward

The closer it gets to 11pm 27 March 2019, the date which UK plans to leave the EU, GBP will become more unstable.

In the case of a no-deal, it is possible that another shockwave will sweep through the forex markets that will be as big as, or bigger, than the huge drop on 23 June 2016.

If the UK is to pay to EU for leaving, the value of GBP will likely decrease significantly due to the lack of confidence other nations will have in the currency.

This is great news for businesses that depend on investing in independent foreign markets but for local organisations, the news is bleak.

What’s more, if Theresa May leads a hard Brexit, the Pound could easily slip further, resulting in higher inflation rates.

Of course, this is all hypothetical right now and is taking a rather doom-and-gloom look at Brexit.

Related: Auto Industry In Biggest Slowdown Since 2008

The months leading up to it may create uncertainty in the forex markets but as Neil Jones, head of hedge funds sales at Mizuho, says, “this is outweighed by London’s time zone, language and the advantages that come from having the biggest market”.

Elite Forex Trading have an interesting take on the cryptocurrency craze that swept the world during the end of 2017 that is also applicable to the Brexit situation; people lose money because they have a lack of knowledge and will rush into trades without the correct education.

It’s entirely possible that GBP will rise as the faith in the currency becomes strong.

Conclusion

Traders must keep a keen eye on when terms for the exit deal are agreed. It won’t be too long until that information is released and when it does, there will be opportunities.

Whatever the outcome, the price of GBP will be forever affected by Brexit. One can only hope that traders are prepared for what’s to come.

By Elite Forex Trading

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