GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos

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On July 16th Sterling hit its 2019 low of $1.24 against the US Dollar. It wasn’t the biggest surprise, as GBP has been bouncing around the $1.25-$1.26 mark for most of July, and, indeed, sits around that mark at the time of writing one week later.

The drop in Sterling’s value prompted a bit of a reaction on social media, which soon snowballed into hysteria and misinformation. The latter came from a widely shared story on Twitter, which claimed that GBP had reached its lowest rate against USD since 1985. That was, in fact, incorrect, as the Pound was buying $1.22 in January 2017.

However, the parallels drawn with 1985 were also misunderstood, as so often happens when the world tries to apply historical context in the era of Trump and Brexit. The forex pair in 1985 was characterised by a incredibly strong dollar – thanks to Reagan’s massive spending programs, Fed interest rate rises and direct foreign investment in the US.

UK economy had less pressure in 1985

Some like to look back at the Margaret Thatcher era in the UK with distaste, but the period of 1984 and 1985 was one of strong growth in the UK’S economy, and Thatcher was in a strong position after her 1983 election victory. In short, the Pound didn’t have any of the baggage, both political and financial, that it sees today.

Obviously, for forex traders interested in the GBP-USD pairing, the question is what happens next? The problem comes with the fact that so much is viewed through the lens of Brexit, and that means we are looking into the unknown. Analysis tends to be torn between the idea that further downside is on the cards for the pound, or that the downside to the pound has already been priced in for a Boris Johnson government leading the UK into a no-deal Brexit.

Trading opportunities on GBP

Yet, this is a time of opportunity for forex traders using platforms recommended in the UK. Why? Because there are smart trades to be made on Sterling’s volatility as talks resume between the UK Government and the EU. The coming months leading up to the 31st October deadline are set to be crucial, and it’s arguably not as rigid a situation as we are led to believe. Positive indications from the EU that a compromise could be made will inevitably sent GBP on an upward trajectory.

But we also have to consider what is happening on the other side of the Atlantic. President Trump is not going to suddenly do anything as drastic as Regan, but he has also been on record several times bemoaning the strength of the dollar. The Federal Reserve is set to cut interest rates any day now, and although that has already been priced in, any further moves by the Fed could see the Dollar significantly weakening. Trump will also be aware of America’s rising debt problem, and will be keen to take action, which might involve weakening the Dollar.

The point is that there is such negative sentiment attached to GBP at the moment. Sure, some of it is justified as the country enters an unknown phase of its future trading relationship with the EU and the rest of the globe. But there are other factors at play out there, and traders can capitalise.

By Archie Richards

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