Credit: Shutterstock photoForex markets rarely move in a straight line but GBPUSD has come close after falling from a high just above 1.50 just prior to the surprise Brexit result on June 24 to a low at 1.3230 on that same day. It subsequently set a low around 1.28 on July 6 and is now trying to correct as can be seen by the 4 hour chart posted below:
Why is the value of GBP important?
In days past central banks would look to defend a weakening currency as they feared the inflationary impact of rising import prices. It was also a concern in countries running current account deficits that depend on foreign inflows to help cover the gap. In the current world of currency wars where deflation, not inflation is the focus, a weaker currency is (no matter what central banks say) is often seen as a source of stimulus for the export sector (note the UK runs a large trade deficit with Europe). It is also not a deterrent (at least in major industrialized countries) to easing monetary policy. This is the case currently in the UK where the initial shock of Brexit was shrugged off and equity markets rallied on prospects of stimulus from a weaker currency. While a weaker currency is also a de facto easing of monetary policy, it is not seen as a deterrent to expected rate cuts by the Bank of England, which could start as early as this Thursday when the Monetary Policy Committee meets.
Where is GBPUSD Headed?
With the Brexit referendum surprise sending GBPUSD to 31 year lows, there is much uncertainty over what comes next given the speed and magnitude of the move down. How it trades could impact all markets so it makes sense to pay attention to the forex market. No doubt you have an opinion on this and therefore now is your time to have your say by completing a quick poll on where the GBPUSD will trade.
Click to participate in our GBPUSD tracking poll
Jay Meisler, founder
Global Traders Association
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
