How is Brexit Currently Affecting Forex Trading?
Regardless of what side of the Brexit divide you’re on, it cannot be denied that all of the economic portents suggest that the UK would be better off remaining in the EU.
For example, whilst the pound (GBP) has fluctuated wildly since the referendum vote and continued to trade within a depreciating range, its most significant peaks and troughs tend to correlate directly with news releases and updates on how the negotiations are proceeding.
The GBP sunk to a 30-year low following the 2016 referendum results, whilst it arguably its nadir after Theresa May’s Mansion House speech reaffirmed the government’s hard-nosed negotiation stance. Conversely, the GBP has increased to 1.13 against the Euro (EUR) recently, amid speculation that the two parties may be moving slightly closer to agreeing a deal.
Brexit and the GBP – What you Need to Know
Make no mistake; a clear trend has emerged over the course of the last three years, with the pound soaring amid speculation of a deal being reached and subsequently tumbling as these hopes are continually dashed.
This came to a head during July and August, when the pro-leave and notoriously self-interested Boris Johnson was appointed as the new Prime Minister following the departure of Theresa May.
Whilst Johnson has spoken with great optimism of striking a new withdrawal agreement with his European counterparts, his lack of clarity and the cool reception he has received in Brussels has encouraged many commentators to suggest that he is simply paying lip service to negotiations as he prepares to take the UK out of the EU on October 31st.
So, despite the fact that the GBP has made incremental gains against the EUR and the U.S. Dollar (USD) of late, these are unlikely to be sustained in the near-term. In fact, the GBP trading range is likely to shrink further as the Brexit deadline approaches, with realistic hopes of a deal fading fast and an off-the-cliff exit removing any kind of transition period.
So, What Does this Mean for Forex Traders?
Fortunately, the derivative nature of currency trading means that forex investors can profit even in a depreciating market, as they’re not required to assume ownership of the underlying asset.
In the current climate and against the backdrop of Brexit, traders are increasingly likely to hedge against the GBP, whilst the EUR may also become less popular as they feel the full force of a no-deal Brexit.
In this respect, currency pairings such as the USD/GBP and USD/EUR should experience heightened demand during the next few months, particularly with the greenback remaining relatively strong at present.
For mobile traders who have previously completed an MT4 download, there will be an even greater opportunity to profit from currency fluctuations as they take place. So, whilst Brexit may be about to decimate the UK economy, forex traders can harness this volatility and leverage it to their own advantage.