The UK currency, the pound, has become the most volatile in the developed market since the Brexit referendum in June 2016. This is due to uncertainty about how the UK will continue to trade with the EU and other major trading partners. We will look at some of the key factors that will affect the currency’s performance.
The volatility of the pound is increasing and is on track to reach its highest level since the start of the financial crisis. As a result, the cost of insuring against wild gyrations in sterling has increased. One-month implied volatility, a measure of sterling’s volatility against the dollar, is now at 23%, the highest since late 2008.
As the foreign exchange market is so interwoven with the economy, experts are examining how Brexit will impact it. For now, the pound sterling is still a major player in the forex trading market, but the impact of Brexit is uncertain. Experts are following the Brexit process closely. While the United Kingdom remains a member of the European Union, the divorce negotiations have already affected the pound sterling’s value. With so much uncertainty, many forex traders are concerned about the impact of Brexit on their trading strategies.
London’s forex trading industry will likely survive, although some companies will be harder hit than others. Many London-based FX firms rely on EU markets and membership of the single market. Therefore, Brexit will affect these firms, making it imperative for politicians to come up with rules and regulations to govern the market.
As Brexit continues to play out, investors should be prepared to take a long-term view on the impact on currency markets. There are several factors that will impact the UK’s currency. One of the most significant factors will be the UK’s financial stability. It is crucial to consider the impact of Brexit on your strategy and make the right decisions in your trading.
The sterling has been influenced by Brexit over the last five years. This was particularly noticeable in the period immediately following the referendum. Sterling suffered its largest drop in 30 years immediately, and two more substantial falls occurred in 2017 and 2019. In August 2019, sterling hit new lows against the dollar and euro. In other words, trading will be more challenging as the pound loses value.
The pound is expected to drop 10% against the dollar if the UK leaves the European Union without a deal. The US dollar is also expected to weaken. The dollar is likely to weaken in the next few years due to the Federal Reserve’s decision to stop tapering its balance sheet. This will reduce the value of UK financial assets and make pound-denominated assets less attractive.
