When do you buy or sell Eur USD against the Pound? Does holding on to your stock shares guarantee you more returns to your financial market portfolio? What makes the GBP have a strong value? Does a high-interest rate always mean high returns on capital gains? These are some of the questions forex trader should ask themselves during this tough economic times.
The base bank interest rate has a proportional relationship to the growth of the Pound. With higher interest rates, investors will prefer holding the Pound over other currencies. A stronger currency will give more value during international payments. Although devaluing a currency provides the same outcome, the economy could be stable with a higher balance of payment as it offset the difference. Considering recent social and political phenomena, the Bank of England has instituted economic shocks on the Euro GBP rates. It also affects other commonly traded currencies in the international financial market.
Why has the GBP Dropped?
When the United Kingdom voted to leave the Economic Union, the Pound fell due to commercial uncertainties. It brought mixed feelings on the economic relationship between Great Britain and Europe. With time, it has stabilised thanks to its positive balance of payments and a stable manufacturing and agricultural industry. It stabilised for some time during Theresa May’s tenure as she fought to keep the United Kingdom’s post Brexit trade in the European economic zone. When she was about to resign, the parliament revoked her political pact with the continental body. It affected the rate with the Euro, which was Boris Johnson’s first order of business when he came in as the new Prime Minister.
The rate today is stable, and any losses may be attributed to the lack of demand within Europe. Trading activities are at their lowest, thanks to the coronavirus pandemic. The increase in immigration tariffs has influenced the pound drop. In the last few months, the value drop has seen several people lose jobs and lower sales rates across the globe.
The Pound is gradually losing its value, with a fear that it might reach its lowest since 1985. In tough economic times, people might choose the US dollar and the Euro due to their demand, plummeting the value of the Pound. The sterling market value also went to a low when the United Kingdom bond market sold them off with a negative territorial capacity. This saw the striking of the Euro push for a single currency economy.
Will the GBP drop any Further?
Market forces makes foreign markets trade based on demand. Being the oldest trading currency known globally, its stability is dependent on its commercial position in Europe and the world. Brexit affected its trade partners’ relationship, but they solidified by looking for new markets in Africa and Asia.
The handling of coronavirus will improve its listing in the short run. As a result, more Britons will have the confidence to return to normalcy, stirring their economic growth upward.
Will the GBP Increase its market Value?
Three main factors come into consideration concerning the growth in GBP forex market.
- The demand and supply markets – The greater the demand, the higher the price value. However, such trends affect the GBP AUD and GBP NZD rates. There is a +0.52% and +2.54% against the Australian Dollar and the New Zealand Dollar, respectively. These two countries are reliable trading partners with the UK. Also, there is a 0.6% fall against the dollar, with a negative average in 2020. This year, the GBP to USD indicates a -6.44% fall. The GBP to the Canadian dollar rates are picking up slowly at +0.31%.
- How fast the economy will pick up after coronavirus pandemic – the growth rate will be marginally small against Euro and the US dollar. Its steady economic recovery will improve its market value.
- Roll out to developing economies – partnership with Africa and Asia will boost the UK’s resolve to remain relevant in the world’s commercial engagements.
Does Inflation Affect the International Market Rates?
The price inflation of essential goods and services in the country translates to a weakened sterling pound. The English Reserve Bank came up with monetary policies to cushion the economy in case of money supply uncertainties. It helped regularise interest rates cut, which reduced trading balances at the England’s Reserve Bank.
Projected Economic Growth
Following Brexit, the gross domestic product suffered a soft blow with increased trade tariffs. Exemption from EU political processes affected the economies of scale at the Economic Union. Jobs for its younger population to other EU countries were also affected. Money repatriated reduced, but it cancelled out income from English citizens abroad, making a neutral balance of payment.
The United Kingdom has a rapid economic growth plan post-Brexit and corona. Its most potent weapon is its people. The government has outlined commercial infrastructure, manufacturing, and food security as the bedrock. Healthcare system will also get a significant uplift to repair the ravage caused by coronavirus.
How does the Pound Play against the Euro?
The Pound has a high value against the Euro, but the Euro commands higher purchasing power. The euro exchange rate is affected by its demand as Covid-19 pandemic intensifies. The more the demand, the higher the value. With the EU economic law still applicable in Britain, Eur GBP exchange is still in force, but on lower demand.
The pooling together, which was termed as a Corona bond by European Union member states, saw the Euro to dollar trade at 1.0919. The Pound to Euro took a nose dive to 0.8950. The market registered a 1.1170 pound to euro exchange rate market.
When the United Kingdom voted to leave the Union, there was a 6% valuation drop in the short run. In the preceding months, there was a 16% drop due to market uncertainties. Fast forward, Pound to Euro hit a new high after Brexit at 1.2046 before the Corona outbreak. The Pound to euro trading could benefit if the Euro to USD continues with its upward trend leaving with other factors remaining constant.
What Will Happen During the Transition Post Brexit?
With the transition period drawing closer, pressure around the sterling will build up. The UK officially left EU in January 2020 and has slightly over a year to work with Europe on a post-Brexit deal. Lack of an extension with no agreement would imply the Pound to USD will trade at 1.19, whereas the Euro to GBP will be at 0.90.
The Prime Minister’s statement on the UK government pulling away from negotiation extensions means that the GBP will perform below par towards December 2020. Best times to buy euros and pounds are rare as the dynamics change every minute. Study the trends and compare them to the global financial market for substantive feedback.
