Tuesday April 11, 2017 - 11:55:16 GMT
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Bears or Bulls? The Outlook of the British Pound
There is no doubt that the 2017 fiscal year has already dealt us its fair share of surprises. It is therefore quite ironic that we have not yet reached the halfway point. Many eyes have been rightfully focused upon the value of the British pound and whether or not it will be affected by the Brexit confirmation. At one time in the not-so-distant past, investors believed that a ratification of Article 50 would send its value spiralling towards oblivion. This has not yet occurred and many Forex traders are now cautiously optimistic in regards to its future performance. What can we draw from these observations and are there any other factors to take into account?
More Bark Than Bite?
Whether one agrees with the move or not, it is a fact that the Brexit vote has undoubtedly tested the markets. Still, why have we not seen an apocalyptic scenario in regards to the pound? Many will argue the simple fact that the entire process will take no less than two years to complete. As a result, market makers have already factored in any significant changes. There is also the very palpable sentiment that it may actually be better for the UK to leave the European Union in terms of international trade. Recent substantial rises seem to have confirmed these observations. However, are there any other factors which need to be taken into account?
More Than the Brexit Alone
We also need to take into account geopolitical events in relation to the value of the pound. Although some analysts have predicted that it will reach parity with the euro by the end of the year, this may not necessarily be the case. Politics always play an important role. One example can be seen in the perceived fragility of the European Union. However, this is not the main concern. Some investors are now looking towards the policies of the Trump administration. In particular, they are wary in regards to his military intervention in Syria. Some traders may be looking to move their assets away from commodities such as oil and place them into short-term GBP/USD or GBP/EUR holdings.
More to be Seen
Depending upon one's perspective, a rising or falling pound may both seem to be realistic scenarios. The main takeaway point is to appreciate that this market is still in flux. More information will be known as the contents of Article 50 are hammered out in greater detail. The main "wild cards" still represents geopolitics as well as any unpredictable moves emerging from the United States.
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