As I mentioned in previous articles, the British pound is one of the most respected currencies in the world. In terms of trades’ volume in currency markets pound could come next to the US dollar and the Euro. After November 16, 1992, pound became wide popular. On that “black” Wednesday its exchange rate decreased and brought the stags, headed by George Soros, more than a billion dollars.
Like other currencies, British pound has its features you need to know when trading GBP/USD, EUR/GBP, GBP/JPY GBP/CHF currency pairs. There are several factors that affect the “Cable’s” behavior.
- Interest rate
As is the case of the US dollar, the Interest rate is the most important parameter affecting the pound. The Monetary Policy Committee of the Bank of England meet every month to define the Interest rate. Not only its change is of interest (if any occurred), but also comments associated with this event.
- The interest rate is increased causes the instant reaction in the market – the appreciation in the value of the pound against all currencies.
- The Interest rate is decreased. Pound is falling.
- The Interest rate remains unchanged. Nothing happens. The exchange could fall a little, but usually it recovered quickly.
In the UK, Inflation is often associated with the Interest rate. The lower the inflation, the stronger is possibility that Interest rate will be higher, with the growth of the pound sterling. If the Inflation is lower than the predicted one, the exchange rate, mostly remains the same, but may be lowered from time to time.
GDP is one of the most important indicators of the state of British economy, with British GDP is included in the world’s top ten.
This indicator has direct incidence on the pound. The fact is that the higher the GDP, the more money get into different hedge funds of the country, since the “cable” is also a reserve currency.
- Raw materials prices
Despite the fact that the UK currency is not the raw material one, the raw derivatives’ prices are in the strong position to influence the currency pairs behavior related to pound. Oil and gas prices have the greatest effect on them.
In this case, when oil prices are tending upwards, the pound rises too. This is particularly noticeable on GBP/USD pair.
- Public debt
Public debt affects the national currency in UK, but not in all countries. Huge (in relation to GDP) debts make the financial community nervous and every increase of this indicator instantly causes a negative reaction of traders. Pound becomes very unsteady that often leads to pound shrink in major currency pairs.
Let’s sum it up. Five factors listed above have a decisive impact on the pound sterling. Each in a different direction, rise or fall can reach 150-200 points in the first minutes of the news release referring to major indicators. It means that if you have the right approach, you can earn good money.
Another feature of the British pound is that beginner traders like currency pairs with GBP very much. Major players often consider this fact in the financial markets. You need to remember that and keep abreast of it.
And the last for today. The amplitude of the pound rise or fall is perhaps the highest among the Big Club members. Fluctuations can easily reach 150-200 points a day in quiet times, and sometimes exceed 300. This is also one of the features of the pound, and it offers much food for thought.
Trade deliberately and
God save the Queen!