The Brexit vote, which took place on June 23, 2016, had a significant impact on the forex market, especially the GBP/USD pair. The result of the vote, where the UK decided to leave the European Union, caused a sharp decline in the value of the British Pound against the US Dollar. This article will explore the reasons behind the impact of the Brexit vote on the forex market and provide some advice on when to trade the GBP/USD pair.
The Brexit Vote and the Forex Market
The Brexit vote had a significant impact on the forex market because it created a lot of uncertainty and volatility. The decision to leave the European Union had far-reaching consequences for the UK economy, including its trade relationships, immigration policies, and financial regulations. These consequences created uncertainty, which led to a lot of volatility in the forex market.
The GBP/USD pair was particularly affected by the Brexit vote because the UK is one of the largest trading partners of the US. The US has a close economic relationship with the UK, and any changes to the UK’s economic policies can have a significant impact on the US economy. Additionally, the UK is a major financial hub, and any changes to its financial regulations can affect the global financial markets.
Impact on the GBP/USD Pair
The Brexit vote had a significant impact on the GBP/USD pair, causing a sharp decline in the value of the British Pound against the US Dollar. On the day of the vote, the GBP/USD pair dropped from 1.50 to 1.32, a decline of 12%. This decline was the largest one-day drop in the history of the pair.
The decline in the value of the British Pound was a result of the uncertainty created by the Brexit vote. Investors were unsure about the future of the UK economy and the impact of Brexit on the country’s trade relationships, immigration policies, and financial regulations. This uncertainty led to a lot of selling pressure on the British Pound, causing its value to decline.
On the other hand, the US Dollar benefited from the uncertainty created by the Brexit vote. The US Dollar is considered a safe-haven currency, and investors tend to flock to it during times of uncertainty. The uncertainty created by the Brexit vote led to an increase in demand for the US Dollar, causing its value to increase.
When to Trade the GBP/USD Pair
When trading the GBP/USD pair, it is essential to consider the impact of the Brexit vote on the pair. The volatility and uncertainty created by the Brexit vote can make it challenging to trade the pair. However, there are some strategies that traders can use to trade the pair effectively.
One strategy is to trade the pair during times of low volatility. This can be done by avoiding trading the pair during major economic announcements or events that can cause volatility in the market. Traders can also use technical analysis to identify key support and resistance levels and trade the pair within those levels.
Another strategy is to use fundamental analysis to trade the pair. This involves analyzing the economic data and news releases that can impact the value of the British Pound and the US Dollar. Traders can use this information to make informed trading decisions and take advantage of any trends or opportunities in the market.
Conclusion
The Brexit vote had a significant impact on the forex market, especially the GBP/USD pair. The uncertainty and volatility created by the vote led to a sharp decline in the value of the British Pound against the US Dollar. Traders looking to trade the pair should consider the impact of the Brexit vote on the market and use strategies such as trading during times of low volatility or using fundamental analysis to make informed trading decisions.
