For some time now, conversations around the Great British Pound (GBP) have been consistently growing in the forex market. Towards the end of September, reports revealed the UK pound was once again reaching multi-month lows, which represents a potential opportunity for those in the forex trading landscape. Analysts are beginning to discuss whether now could be an opportunity to adapt your trading strategy.
There are a number of factors influencing the potential change of the GBP currency in the months to come. At the time of the writing, grocery store shortages are still evident in the UK as a result of the pandemic, inflation is rising at break neck speed, and there’s a significant crisis happening around access to fuel. All of these factors working together is creating a sense of impending anxiety for market waters, who believe the pound could be about to decline rapidly.
The Potential Opportunity in the FX Market
In September’s state of panic, the value of the GBP against USD fell to around $1.3422 for every £1, which is the lowest it’s been since December. Value has also decreased by 2% since then. Many industry analysts are concerned for investors that sterling could become a market which is truly too unpredictable for consistent trading.
Some experts believe the pound’s consistent decrease in value means it’s behaving like an emerging market currency. This isn’t the first time the comparison has been made recently, though it’s one that’s being met with significant controversy. Options also suggest that cable may need to be prepared for additional price swings as one-month implied volatility for the USB/GBP pair reached the highest level since April.
Notably, GBP currencies have also been compared to an emerging market before, when the UK first started drawing away from the European Union. However, these concerns did begin to diminish at the beginning of 2021. Now, strategists are beginning to see the problem rising again, as the UK continues to deal with supply chain problems from a combined impact of the pandemic and Brexit. Widening spreads and the rates market have also been pinpointed as a possible reflection of anxiety about the UK’s finances, though it’s too soon to be certain if this is the case.
Dealing with Uncertainty
Conversations are continuing to heat up about the GBP currency in a range of forums. There’s significant disagreement among forex traders about what’s actually causing the problem with the finances of the UK, and the obviously significant differences between the UK and countries like South Africa. For instance, credit risk might be a factor in the pricing on debt, reducing the appeal in times of stress. Alternatively, Gilts are usually considered to be asset havens.
Compared to countries like Brazil, the UK’s currency is also far less volatile. Some have said the turbulence in the recent value of the pound is attributed to funds holding concentrated investments. The week leading to the 21st of December, hedge funds were among the most bullish on the pound for over two months. This was before the BOE meeting, which may have inspired additional bullish bets.
Crucially, the pound is still the fourth most widely used currency following the dollar, euro, and yen. Financial market investors are being advised not to act too quickly by experts, but the sharp moves in the currency are enough to cause significant anxiety among many traders. At the heart of the action in the UK market is the credibility of the BOE in fighting inflation and managing the economy. Currently, inflation is exceeding 4%, and a rate hike may occur before the close of 2021.
What Can FX Investors Do?
The best strategy for investors in this complicated environment is to be aware of the changes as and when they happen. Speed will be essential to capitalize on market opportunities when they emerge, and this means FX traders will need to be properly prepared. By setting up Forex signal alert notifications with the right trading signals services, it could be essential to staying ahead of the latest news and changes as they emerge.
As is usual in the trading environment, it’s the experts with the greatest amount of research, and the right resources for engaging in agile trading events quickly that will come out on top. As the marketplace continues to change following ever more complicated conditions in Britain and the UK, it’s important for FX enthusiasts to remain vigilant going forward. Failure to stay ahead of the curve consistently could mean the loss of valuable opportunities.
