On the heels of Britain’s shocking decision to exit the European Union, the GBP took a heavy beating. The scary part is that as much as the British pound taking a beating because of the decision is entirely to be expected – it could just be the start of some very tough times indeed.
Uncertainty All Round
The main problem the GBP faces is that there is a lot of uncertainty – and that is likely to make most investors steer clear, at least for the time being. On top of that there is likely to be an assortment of trade disruptions, loss of business, and some multinationals may even start to plan to move their headquarters or European headquarters out of London.
Suffice to say on the economic front the uncertainty is tangible – and the same can be said of the political arena as well. Now that (former) Prime Minister David Cameron has stepped down, the big question is who will end up replacing him and what their position will be when it comes to the European Union, trade negotiations, and so on.
In many ways the timing couldn’t be worse especially considering in the immediate future there is nothing on the cards that could help strengthen sentiment towards the GBP. No data releases or other big events are scheduled, and so the downward trending speculation and volatility is likely to continue.
“When Will it Bottom-Out?”
The main question for most forex traders is when will the GBP bottom out, and stop losing value. At that point (conceivably) it may become an attractive option due to the fact that it may end up regaining some of its value.
At the end of the day that largely depends on what happens over the next few weeks. As far as Britain is concerned they now need to right the ship – which means a new Prime Minister that has a plan and vision to steer them through the decision that they’ve made. If that Prime Minister can sell investors (and the world at large) on those plans, the GBP might begin to stabilize.
While that is happening however, any and all information about Britain’s talks with the European Union are bound to have an effect on the GBP. That effect could go both ways however, and is likely to cause several swings over the next few weeks.
Generally speaking, most traders holding GBP who had stop-loss orders should have already sold by now. That can be seen on the market as the JPY and USD have both strengthened as the GBP declined. For now, the safe option for traders would be to watch and wait – and only act if something seems likely to change.
If you want you could explore other forex pairs to trade on ETX Capital, or even look to start trading on different markets and financial instruments. The range that is available will ensure there is always the opportunity for a profitable trade somewhere or other.
Sources: theguardian.com / etxcapital.co.uk / nasdaq.com