Forex trading is often cited to be volatile and difficult to predict – and developments from the United Kingdom have definitely proved this to be true. In a surprising development for both UK politics and the UK economy, the pound looked to be slightly healthier after a 20-month low following Prime Minister Theresa May’s announcement that the eagerly anticipated Brexit deal vote will be postponed. Despite EU representative Jean-Claude Juncker claiming that no more concessions will be made for a new deal, May hopes to budge on some of the terms outlined in the hopes that this will result in her Brexit deal being ratified. Parliament has been vocal about not supporting the deal and many expected the deal to be voted down on Tuesday 11 December. Instead, the pound has bounced back up as the possibility of not crashing out of the European Union becomes a prospect. But what does this mean for the world of forex trading?
The Pound and Brexit
Monday 10 December 2018 saw the pound fall 1.6% against the dollar to be traded as low as $1.2507 – yet the following day saw an increase, with the pound trading up 0.4% at $1.2621. Thu Lan Nguyen, a Commerzbank analyst, claimed that until some decision on Brexit is reached, the value of the pound on forex markets would continue to “move sideways.” The pound’s drop since the June 2016 Brexit referendum result greatly affected the forex community. The euro – despite its own tumultuous time – was able to price up slightly by 0.2% on the dollar, trading at $1.1377. The pound being down also helped the dollar recover amid a tense period as the Federal Reserve is expected to pause its rate increases sooner than anticipated. Junichi Ishikawa, senior FX strategist at Tokyo’s IG Securities added that falling US bond yields would likely result in an eventual downturn for the dollar, despite its slight rise. In spite of this, forex traders from the States are optimistic that trade deals with China may help see a greater boost in the USD as a forex trading pair.
The Dollar and the US-China Trade Deal
The dollar’s situation may also be less than ideal due to the rising tensions over the economy in regards to China. President Donald Trump has already cited the amount of tariffs he would impose on Chinese manufacturing so that the states he promised would have their industries returned have their vow met. But Chinese President Xi Jinping has also said that he would impose his own tariffs. The US-China trade deal could smooth out any trade issues and prevent the dollar slipping in its forex position due to China. The fact that the dollar evened out on forex markets due to the latest round of trade talks means that the issue has been one affecting the dollar’s position (it rose from a two-week slump). The dollar wouldn’t be the only one affected by a trade war with China as global economic growth would also likely be frozen.
The Dollar and the Pound
While the UK has the FCA (Financial Conduct Authority) to monitor how forex is traded, CFTC is also in charge of promoting market integrity in the US. Ensuring that the way currency is traded in each country is as above-board as possible is one of the reasons that the trading pair is so revered. Indeed, the dollar and the pound – represented in forex trading as USD/GBP – is one of the most important trading pairs in the economic industry. As a result of tensions in their respective countries, the value of the pair, on the whole, has been down and will continue to be affected. The UK saw the fastest wages growth since 2010, while Irish Deputy Prime Minister Simon Coveney’s comments on the Irish backstop when Britain exits the EU seemed to stem the downward tide. The importance of GBP and USD and their position in the world means that monitoring what happens with each country and how this impacts their trading pair is necessary in order to analyze the wider economic situation. The pair are often used to identify issues in the world’s economy and to guess what may happen with other trading pairs and in other markets. As such, any trouble for either of the countries will no doubt filter out and have some impact across the board due to the highly interconnected nature of the currencies.
When it comes to forex trading, keeping an eye on current events is crucial in order to anticipate what may or may not happen in regards to your own currency. Indeed, much like trading Bitcoin and other cryptocurrency, forex trading can be regarded as unpredictable. But, as has been shown from the situation in France to Britain to even the United States, not all bad news and expected trouble for currencies actually ends up having a significant impact. As those new to forex may be learning – and those seasoned in forex trading will already know – things don’t always happen as you’d expect them to. While monitoring trends and becoming an expert can benefit you, sometimes the market can’t be predicted in its entirety.