Turbulent Times Throw GBP into Flux
With all that’s going on in the world today, short-term economic uncertainty is essentially a given. For those tracking the GBP however, or engaging in the currency trade, a closer examination is needed. And if recent weeks have shown anything, it’s that currency value is behaving somewhat unpredictably.
GBP Early in 2020
To say the GBP started 2020 on a high note would not necessarily be appropriate with regard to years past. Relative to performance throughout much of 2019 though, the New Year did bring some optimism for the growth of the pound. As of January 1, the pound was worth 1.32 U.S. dollars, up from 1.20 just a few months prior. At the same time, the pound equalled 1.18 euro, up from just 1.06 in the middle of August. Given this mild uptick, it’s understandable that investors had a positive outlook early in 2020.
The Effects Of The Bailout
Once the economic turmoil hit, all bets were off regarding ordinary projections and performance. The pound began to drop a little more than a week into March, as Britain awaited government action to preserve some semblance of stability in the economy. And yet, when that action game, the GBP continued to fall. The Telegraph reported a £330 billion bailout on March 17 — and while currency values have since rebounded slightly, they did not respond immediately. Market uncertainty appeared to supersede the intended positive effects of the bailout.
Boris Johnson’s Health
As we just mentioned, the pound did rebound somewhat, not to the early January numbers (which remain the best we’ve seen in 2020 so far), but in the right direction. Then, however, we learned of the prime minister’s deteriorating health, which naturally injects further uncertainty into the markets. As we said when highlighting the story ‘Boris Johnson Moved to Intensive Care’, the PM is receiving excellent care, but has seen his condition worsen. This is a new enough development that it’s difficult to say what affect it might have on the economy, or the GBP specifically. However, whether Johnson’s condition improves or worsens in the coming days or weeks could certainly send prices in one direction or the other.
When to Watch the Markets
Given all of this, it’s difficult to know when to watch the markets, or when to hope for a clear picture of GBP performance. The truth though is that there’s no guarantee of stability at any point in the near future — which means it may be most strategic to simply adhere to ordinary strategies. FXCM’s breakdown of trading hours specifies the overlapping hours for forex markets in Europe and the United States, which may be particularly telling as we watch the fluctuations to come. The window of 12PM to 4PM UTC (afternoon in London and morning in New York) is when the highest volume of trading occurs. So as we ride out the turmoil, this is likely to be the most telling window on a day-to-day basis.
The reason we just pointed to day-to-day trading windows is that right now, we are essentially in a wait-and-see mode regarding the performance of the pound. The GBP did rise after the bailout package was announced, even if it took a few days; thus far, it has also mostly withstood the news about Boris Johnson’s health. With the next few months still full of economic question marks, however — not to mention the prime minister still being in the hospital as of this writing — there is simply no trustworthy concrete analysis of the near-term outlook. For now, traders will simply have to watch the day-to-day movements, mind the news, and take a careful approach.