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The British pound sterling. It is a currency that has been the topic of many a lively conversation amongst investors over the last few years. With the UK about to leave the European Union in early 2020 (if, Boris Johnson gets his way and implements the result of the 2016 referendum), the pound has been rising and falling at a pretty volatile rate recently, seemingly at the whim of article writers, opinion poll results, and political debaters. Some things, however, never change. When the UK economy looks strong, the pound still rises, and when uncertainty sets it, it still falls.
With the exact type of Brexit that will be carried out still not known, different ‘divorce’ proceedings will mean different things for investors and traders. The trading of GBP against other major currencies will offer different gains depending on whether there is a ‘hard Brexit’ or a ‘soft Brexit’. A hard Brexit is generally thought to be something that will make the GBP dive initially once the UK leaves the EU, whereas a soft Brexit should mean that the currency value remains slightly steadier. Just how steady or volatile the currency stays will depend on a few factors.
Trade Talks
Firstly, If the UK does crash out of the EU with a hard Brexit, the speed at which trade deals can be struck will influence the value of the GBP considerably. Whether those deals are with the EU or further afield is less important than how big and potentially lucrative those deals could be, and how quickly they can be enacted. Right now, nobody knows the details of any potential deals that will be brought in should a hard Brexit happen, but the general expectation is that even trade deals that have been considered (such as that with the United States) will still take years to bring into being.
The price of the GBP against the euro or dollar will no doubt rise or fall on announcements made before anything is set in stone, and keen Forex traders will surely be keeping an eye on the politics sections of their news websites just as much as the financial sections because of this.
Herein lies the opportunity surrounding Brexit for Forex traders. Whilst you may find yourself on one side of the political argument for or against Brexit, the volatility that such political upheaval will cause is a useful thing for anyone trying to make money this way. That isn’t to say that political wrangling are always a good thing for investors (many serious cases of political upheaval only even send a currency in one direction), but when the uncertainly fluctuates from pessimistic to optimistic, and back again, there is money to be made in Forex trading.
All eyes on the economy
So what are signs to look for when considering whether to buy or sell GBP? The aforementioned trade talks with the US are of major importance, as are the coming talks with the EU. The uncertainty of a hard or soft Brexit will also cause fluctuation, along with any signs that the Uk economy will flourish or stagnate as a result. While some large corporations have already moved their headquarters to mainland Europe in preparation for Brexit, so far there has been little talk of any business leaving the UK altogether as a result of the 2016 referendum. Could this change? Perhaps. But there is also the trade opportunities outside of the EU to consider, and whether they will bring a new influx of business to the UK eventually.
It can be difficult for UK based traders in particular, to take the emotion out of what has been a highly charged topic for the last couple of years, but sensible investors will be looking for an opportunity here. The key will most likely be, to keep an ear to the ground surrounding any upcoming developments. When you look at the levels at which the pound dropped when a ‘no deal’ Brexit looked the likeliest, and how it rose so sharply after a trade deal with the EU looked to be back on track (and also after the recent results of the General Election), it is going to be a very interesting time for those investors who keep their finger on the political pulse of the UK and its future trade partners.
