With the UK expected to cut off its ties with the European Union come March 29th, Brexit negotiations have become a top concern. Every development and decision made from the Brexit talks within the next six months will have a massive effect on the financial market globally. The unpredictability surrounding Brexit negotiations has yielded economic and political consequences, hence giving room to speculate. With all these consequences, forex trading has been in the spotlight.
The speculations have made currency traders have many questions such as are there new risks that one should be aware of? Are there particular opportunities to look for? And is there a need of readjusting the trading strategy as one looks to the future? Below, you’ll get to know more about the impacts currency traders will face due to Brexit.
- GBP/USD pair could tumble down
Trade balances due to trade transaction cost increasing would significantly affect the currencies. For traders trading the GBP/USD pair would significantly feel the effect of the trade balances. The deficit on Britain’s account has been increasing, and Brexit is likely to cut off the inflow of foreign capital. This will translate to the UK losing its position as a prime investment location, and later on, weakening the sterling pound. There is a possibility of the GBP going down the drain to about 1.20 against the USD. Well, for the currency traders trading this pair would have a rough time.
- Volatile events
On the verge of Brexit negotiations, there is a likelihood of unpredictable events rising. The unstable state and events of world politics place forex traders on the spotlight. In many ways in these volatile events, traders should know what not to do as well as how to handle the events. When events change rapidly, the currencies undergo dramatic shifts in value. Well, as a trader you cannot behave dramatically as you will be taking more risks hoping for big rewards which are impossible.
- Increase in trade transaction costs
With the UK leaving the European Union, they’ll also have to depart the customs union. It will mean an increase in controls over goods manufactured in the UK that are crossing the European border. For instance, the foods and beverages prices are set to increase by 29% while the non-food items increase by 7%. Increase in the cost of goods imported would massively impact the economy on the whole.
Since we are talking about importation price going up, we cannot leave out the forex traders. It’s because forex traders usually deal with import and export traders. With the prices going up, forex trading will be affected through trade transactions increasing.
- Currency movements
As a currency trader, you always have to situate yourself in the context of the broad world economy particularly during the Brexit negotiations. Brexit has led to currency movements worldwide. These movements are evident in the behavior of different economies. For instance, the US economy is picking up while the Chinese economy continues to be below the green mark. It means traders in countries that the economy is floundering are likely to make losses. All this means that the forex traders need to be on the watch and always familiarize themselves with multiple currency pairs to avoid being on the losing end.
- Boost for traders in Scotland and Northern Ireland
Apart from the negative impacts, there are positive ones especially for currency traders in Scotland and Northern Ireland. With the UK breaking up from the EU, Scotland becomes independent and united with Northern Ireland. In turn, it will make the pound suffer more while the euro is getting a boost from Ireland. It, therefore, means the traders in Scotland and Northern Ireland trading blocs will benefit a lot. Additionally, traders who trade a pair comprising of euro will also make a profit.
The uncertainty caused by the Brexit will continue to impact the forex market globally. Therefore, as a trader, take time and study all these trends for you to be on the winning end amid this Brexit unpredictable state.