There’s no doubt that pound has continued to trade within a narrow range since the EU referendum vote in June, with Bank of England (BoE) chairman Mark Carney suggesting that increased volatility has caused the GBP to decouple from similarly advanced economy pairs.
Make no mistake; it’s incredibly rare for a major currency to undergo such significant fluctuations within a short space of time, and this trend is set to continue against the backdrop of Boris Johnson’s aggressive deadline for trade talks and the havoc been wrought by the Coronavirus epidemic.
With the pound now risking decline to 1.1433 against the Euro (EUR) in the months ahead, there’s no doubt that forex traders face a raft of challenges in the current climate. But what do they need to know for 2020?
The GBP, USD and the EUR – What do you Need to Know?
Interestingly, the pound has suffered more than the Euro since the referendum result was delivered, primarily because it’s thought that the UK will experience a bigger hit in terms of finance and the economy post-Brexit.
To this end, the pound sank to record lows twice in the 10 months following the referendum vote, first in the immediate aftermath of the result being announced and then again following Theresa May’s disastrous Mansion House speech that outlined her red lines for the subsequent negotiations with the single bloc.
The GBP has scarcely performed any better since this time, with intermittent growth spikes (such as the one that followed the Conservative’s decisive election win last December) typically followed by periods of loss and prolonged decline.
We’re undoubtedly on a downward trajectory now, with the gains created as a result of the aforementioned election result undermined by a restricted window for trade talks and the looming spectre of a no-deal Brexit.
It’s also interesting to note that the pound has performed consistently poorly against the U.S. Dollar (USD) during the same period, and despite minor fluctuations it continues along a downward spiral.
This trend has come to a head recently, with the GBP/USD currently trading in four-month lows as it nears the 1.2700 mark. According to Oanda, these losses could extend further to 1.2600, as the greenback continues to benefit from an improving national economy and the recent trade truce agreed with China.
What’s Next for Forex Traders?
The key takeaway here is the restricted performance of both the pound and, to a lesser extent, the Euro, which have traded in an ever-depreciating range over the course of the last four years.
As a result of this, the GBP/EUR pairing is currently causing investors to take flight, with the greenback and emerging currencies such as the Russian Ruble (RUB), the Brazilian Real (BRL) and the Chinese Yuan (CNY) offering far greater appeal against the backdrop of an increasingly volatile economic climate and growing geopolitical unrest.
With the trade talks between the UK and the Euro sure to continue until December 31st at the earliest, these trends are unlikely to change significantly throughout 2020. This is definitely having an impact in the minds of traders, who are constantly looking to alter their trading strategy and underlying portfolio.
In terms of specific currency pairings, speculating on the further decline of the pound and backing the USD/GBP offers a viable course of actions for traders, while identifying the best performing emerging currencies may also prove profitable in the current marketplace.