It is no secret that a falling currency in a currency pair is good for investors, as their asset prices are affected.
There are some reasons why a currency is falling in its currency pair, and you must understand these if you want to do well when investing in currencies.
In the current global economic crisis, the prices of commodities have risen massively and many investors are worried about having to pay more for their commodities. It is not unusual for the price of gold to rise when there is economic turmoil because people’s demand for this asset increases. So do you believe that the United Kingdom’s current rate of unemployment is going to affect the value of the British Pound (GBP)?
Actually, this currency has gone up since the beginning of the euro crisis in 2020. Although it fell during the last two weeks of August, it has rebounded recently and is now about where it was in late 2020. According to Andrew Cline of BDO UK, and Martin Lipsett of KPMG, the drop in the United Kingdom’s inflation rate was due to the large decline in oil prices and the rise in the value of the US dollar. So, they believe that the low inflation rate is being driven by the depreciation of the British Pound (GBP).
It is likely that the economic turbulence will be here for some time, which means that the prices of goods will continue to rise. Although the depreciation of the British Pound (GBP) is great news for investors, it is also obvious that the market is in turmoil because of uncertainty in Europe and the United States.
Of course, at this point, you are probably wondering what impact the fall in the value of the British Pound (GBP) will have on you. Well, the answer is that your equity portfolio may suffer as well. For example, if you own an investment in a company that produces a metal like zinc, then your stock holdings may drop in value due to the slump in the price of zinc.
However, you should not panic as the United Kingdom is not about to default on its debts. As long as they keep a control on their finances, there is no reason why the United Kingdom’s public accounts should fail to show a surplus every year.
And for those who think that the United Kingdom’s central bank has somehow caused the sterling’s fall, they are quite wrong as they have not actually set the rate. Their task is simply to prevent the price of the British Pound (GBP) from falling too far. When you know this, you can see that the central bank is not to blame.
You should therefore expect that the drop in the United Kingdom’s economy will only make your equity portfolio and the British Pound (GBP) stronger. In other words, you should take advantage of any upswing in the financial markets. By doing so, you will be able to increase your wealth even further and be able to enjoy a comfortable retirement.
Even though a fall in the United Kingdom’s economy has led to the depreciation of the British Pound (GBP), it does not mean that you should immediately invest in your stocks and currencies. You should instead continue to protect your assets in the same way that you do now.
In fact, you should diversify your portfolio by looking at bonds and stocks, which should not affect each other. After all, the stronger bonds are, the more likely they are to appreciate in value. However, if you invest in the stock market, then you will always have a strong market position when the time comes to invest in bonds.
Instead of diversifying into bonds, you should look at investing in different sectors and areas. For example, you should concentrate on investing in the IT and information technology sector, as well as the financial services sector. After all, the financial services sector has been the main driver of the UK’s economy in recent years.
This bull market is likely to continue for several years, but there is no indication as to when the currency will bottom out. and therefore you must diversify your assets in a number of areas.