easyMarkets NEW Hot Topic – GBP Vulnerability
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If there’s something the Flash Crash of the GBP showed us a week ago
its that since the Brexit referendum in June the pound is skating on very thin ice where anything might happen.
Here’s a quick look at what happened
It started with the UK’s vote to leave the European Union on June 23rd. Investors reacted immediately with markets from Tokyo to New York experiencing one of their worst trading days since the financial crisis of 2008
By the close of day, 2 Trillion Dollars had been wiped from the global exchanges – the biggest single-day drop in history.
The sterling bore the brunt of it plunging to a 31-year low, dropping from 1.57 to 1.3684, losing more than 11%.
Less than 24 hours later, Prime Minister David Cameron resigned and after a brief power-play, Teresa May emerged as the new Prime Minister
In order to Weather the storm Bank of England’s Mark Carney went on to halve interest rates to 0.25% for the first time since 2009 and introduced a bond purchasing programme.
The markets seemed to give their approval while a low pound gave a boost to summer tourism and retailers seem to have fared well.
So was this just the calm before the storm?
on the 2nd of October, Prime Minister May commented she will be looking to conduct a ‘hard Brexit from the EU’ and gave the date for triggering Article 50 by March 2017.
5 days later, during the Asian trading session, the pound unexpectedly nose-dived against the US dollar and the euro while Cable plummeted a staggering 5.7%.
Algo trading, a rogue trader and ‘fat finger error’ have all been blamed for the “flash crash” of the pound
So what’s ahead for the pound?
Britain’s GDP is expected to grow by just 1.5% this year and only 0.6% in 2017, which is down sharply from the previous forecasts of 1.8% and 2.1%
While the IMF recently downgraded its outlook on overall global growth citing heighted risks emanating from Brexit.
So while the British economy appears to have weathered the immediate impact of the Brexit vote policymakers are still bracing for the worst, with the Bank of England warning repeatedly that the worst is yet to come.
Now, What does this mean for you, the trader?
Opportunities lie ahead with the expected volatility. And as always, with greater volatility comes greater risks
