The value of the British Pound (GBP) has been very stable in the past couple of years as major world currencies have lost value. However, that stability is being tested as a result of various causes including political and economic issues.
This article will discuss some recent and wild gains in the GBP/USD and FTSE 100.
While trading, the UK has been heavily dependent on the US Dollar. In past years, a number of European countries have traded against the USD. However, with economic problems such as falling trade and unemployment, many of these countries have been unable to maintain their trade with the US, resulting in more reliance on the currency which is used in other countries.
In recent years, the British Pound has been linked to the Euro as well as the US Dollar. The largest exchange rate that influences the British Pound’s exchange rate is the EUR/GBP. At times, the British Pound has been on a roller coaster ride in relation to the EUR/GBP, in some instances gaining more than 50% in relation to this currency pair.
As a result of changes in the trading world, the British Pound has been affected by the EUR/GBP as well as the USD/GBP. Other exchanges such as the Japanese Yen, Canadian Dollar, Australian Dollar and New Zealand Dollar have also been linked to the GBP, making it a more flexible and a more attractive trading choice for traders. For traders, this flexibility means that there are no immediate consequences to trading in the UK, but rather the potential for more risks and rewards.
The price of the British Pound has been linked to the US Dollar, especially in the past few years. Asthe rate of the Dollar is dependent on the rate of the Euro, many investors find that the Dollar is better than the British Pound for hedging against currency fluctuations. In addition, the Pound does have the potential to trade in line with the EUR/GBP.
As a result of the UK’s declining trade deficit and the negative impact of the 2020 global financial crisis, the value of the British Pound has decreased significantly. As a result, currency markets have been highly volatile. Traders that previously were able to trade the Pound against the Euro have found themselves short changing their positions when compared to previous years.
The weakness of the GBP/USD as well as the FTSE 100 has resulted in sharp declines in the value of the GBP. Traders who had traded the GBP for a long time now find themselves short of capital and unable to capitalize on opportunities. A trader may think that he or she is in a good position and may be using a large swing trade or stop loss order, but when the market changes, the trader finds that they have no capital in the bank and have to close the position.
Traders may find that currency market volatility has also affected their businesses. This has happened in the financial sector, with the big four banks (Bank of England, Lloyds TSB, Barclays, RBS) all having faced significant losses recently. These losses have meant that traders are finding themselves limited in terms of their trading capital and unable to make full use of their trades.
These losses have meant that the GBP/USD and the FTSE 100 have been at risk of further decline. The USD/GBP is very sensitive to currency market volatility, so if there is an unexpected downturn in the economic situation, then the USD may also fall in relation to the GBP.
Investors are able to minimise their risks by betting on the currency markets in place of the wider markets. The only risks that they face are limited to the volatility of the currencies involved. as the whole markets can only act as a buffer if the GBP/USD and the FTSE 100 fall too far, but they cannot prevent this happening.
Due to the volatility in the currency markets, UK equities can be bought at a discount, but the downside risk is not so high as with the stocks. many of the brokers are easy to access and there is often very little concern over the conditions that need to be met before buying can be sanctioned.