The British Pound continues to fall against the US Dollar as the Bank of England announces an interest rate hike. The BoE announced a 0.25% rise in rates. Which likely contributed to the downtrend in the Sterling after earlier trading conditions were optimistic.
Prime Minister Theresa May addressed Parliament this morning, before the news of the BoE’s decision broke, stating that UK-EU negotiations should be given enough time to succeed and increased transparency was needed for Brexit preparations. This puts investors on edge with concerns about further delays in trade talks between Britain and Europe, both of which are heavily connected to GBP performance on currency markets.
“The longer that uncertainty remains, the higher the risk of a no-deal. For these reasons, I believe that it is necessary to agree to the terms of our future partnership alongside those of our withdrawal from the European Union. I want both sides to approach this project in a constructive spirit; to be willing to meet halfway, and to seek a deal that works for both sides,” said Theresa May.
British Pound Is Losing Ground Against U.S. Dollar. Reports of a UK rate hike ahead may be the latest blow to Pound bulls, who have seen the GBP rise against most major currencies.
The news sent the pound down against the U.S. dollar by nearly 1%.
The Sterling’s weakness also stands in contrast to other major currencies such as the Euro and Dollar as both of them continue to fall as investors react negatively to higher global interest rates. The effects on oil prices and equities markets have been more pronounced for buyers, but these movements in FX have led to concern for some investors that the Sterling is losing its status as a key safe-haven asset for markets.
The relative decline in the Sterling is part of a larger trend for countries with high U.S. dollar-denominated debt, which is being driven by steadily increasing yields and interest rate hikes from the Federal Reserve. This has led to markets seeing a flight to quality as investors seek assets that have not seen as much volatility thus far this past year.
What happens if the Pound further falls?
The Pound continues to fall against the US Dollar as the Bank of England announces an interest rate hike. The British Pound is challenging its downward trend as it hits a 1-year low against the Euro and other major currencies. For investors, who are new to currency trading, it is critical to understand how this will affect profits and losses. Looking at what happened in 2013, when the British pound depreciated in relation to the U.S. dollar, this could result in significant losses if traded improperly.
How do changes in the Pound impact profits from British Pound trading?
In general, a decline in the value of the pound means it will cost more USD to buy the GBP. This means investors who have bought British Pound assets in pounds and have profits held in dollars will have a higher total return than investors who have held their GBP assets. This is because they are making more when they exchange their GBP for USD.
How does currency volatility affect trading?
Currency market volatility is typically measured by using an index like VSA or ATR. These indexes measure how much price exposure there is to each lot of currency and how quickly these prices move. Investors should trade more when markets are more volatile and less when markets are less volatile.
What is the VSA?
The Value of the U.S. Dollar Index is an index used to measure the relative value of the U.S. dollar against other currencies around the world, such as sterling, yen, or Swiss francs. The VSA can be measured in terms of dollars per 1 unit of every currency and is calculated based on a basket of currencies including USD, EUR, GBP and JPY. The VSA measures how much the price movement for each currency moves for every US dollar change and is expressed in percentage points per 100 points for each currency.
