The British pound, also known as GBP, is one of the most heavily traded currencies in the world. It is the official currency of the United Kingdom and is used in several other countries, including Gibraltar, the Falkland Islands, and the Isle of Man. In the world of forex trading, the pound is often referred to as cable, which is a reference to the transatlantic cable that was used to transmit currency prices between London and New York in the 19th century.
In recent years, the pound has experienced significant volatility in the forex market due to a variety of factors, including Brexit, economic data releases, and geopolitical events. In this article, we will explore how the pound is currently performing in the forex market and what factors are driving its movements.
Brexit
Brexit, the UK’s decision to leave the European Union, has been a major driver of pound volatility over the past few years. The uncertainty around the Brexit negotiations and the potential impact on the UK economy have caused the pound to fluctuate significantly.
In December 2020, the UK and the EU finally reached a post-Brexit trade deal, which helped to provide some stability for the pound. However, the deal did not address all of the issues surrounding Brexit, and there are still concerns about the long-term impact on the UK economy.
Economic Data Releases
Economic data releases, such as GDP, inflation, and employment figures, can have a significant impact on the value of the pound. Positive data releases can lead to an increase in demand for the currency, while negative data releases can lead to a decrease in demand.
In recent months, the UK economy has been hit hard by the COVID-19 pandemic, with GDP contracting by a record 9.9% in 2020. However, there are signs of recovery, with GDP growing by 1.3% in December 2020.
Geopolitical Events
Geopolitical events, such as elections and political turmoil, can also impact the value of the pound. For example, the Scottish independence referendum in 2014 caused significant volatility in the pound, as investors were uncertain about the future of the UK.
More recently, the US presidential election in November 2020 had an impact on the pound, as investors were uncertain about the future of the UK’s relationship with the US. The election of Joe Biden, who has expressed support for the Good Friday Agreement in Northern Ireland, helped to provide some stability for the pound.
Current Performance
So, how is the pound currently performing in the forex market? In early 2021, the pound has been relatively stable, trading in a range between $1.35 and $1.38 against the US dollar. This is a significant improvement from the lows of $1.14 that were reached in March 2020 at the height of the COVID-19 pandemic.
There are several factors that are contributing to the stability of the pound. The rollout of COVID-19 vaccines in the UK has boosted investor confidence in the UK economy, and the post-Brexit trade deal with the EU has provided some certainty for businesses. Additionally, the Bank of England has indicated that it is not planning to lower interest rates below zero, which has helped to support the pound.
However, there are still risks to the pound’s performance in the coming months. The UK economy is still facing significant challenges due to the COVID-19 pandemic, and there are concerns about the impact of Brexit on trade and investment. Additionally, the Bank of England has warned that inflation could rise above its target of 2%, which could lead to higher interest rates and a stronger pound.
Conclusion
In conclusion, the pound is currently experiencing relative stability in the forex market, following a period of significant volatility due to Brexit and the COVID-19 pandemic. While there are still risks to the pound’s performance, such as the ongoing economic challenges and inflation concerns, there are also positive factors, such as the vaccine rollout and post-Brexit trade deal with the EU, that are helping to support the currency. As always, forex traders should keep a close eye on economic data releases and geopolitical events to stay informed about the factors driving the pound’s movements.
