The forex market is the most liquid and popular financial market in the world, which means it can provide plenty of profitable opportunities for investors. One of the major currencies of this market, is indisputably, the Great British Pound (GBP).
Understandably, the first steps as a trader in this market is to understand and research what is forex trading and how does it work, which will give you a solid foundation to make well-informed trading decisions.
You can also utilise technical analysis, to examine patterns and trends of the market movement in the past. With this in mind, let’s look back at the performance of the GBP in July in comparison to this month.
The value of the pound in July
Last month was a turbulent time for the value of the GBP, as the UK experienced the lifting of COVID-19 restrictions, with ‘Freedom Day’ the term coined for the occasion. The original date planned for the reopening of the country’s economy was 21st June 2021, but as COVID cases surged in the UK, the date was postponed to 19th July.
However, as Freedom Day eventually came round, UK Prime Minister Boris Johnson, urged the public to remain cautious, as new cases of the virus were attributed to the highly contagious Delta strain.
But there wasn’t just caution amongst the public, the rise in coronavirus infections meant that investors turned to the safe-haven of the US Dollar (USD) rather than riskier currencies, as the GBP fell to its lowest value since February 2021.
As well as the risk aversion felt in the market sentiment, the losses in the pound felt in July could have also been a result of investors liquidating their long positions. Sterling was looking hopeful, with the successful vaccine rollout in the UK acting as a catalyst for the gains seen in the forex market, earlier in the year.
However, doubts began to arise in July as the new variant of the virus had its effects on a global scale, and in particular the UK, therefore hitting the value of the nation’s currency. So, any speculators who were holding a long position on the pound, with the prediction that it would strengthen, changed their position to react accordingly to these fundamental factors.
The value of the pound in August
With last month behind us and moving forward into August, the pound seems to be making gains in the market, at the time of writing. Sterling performed particularly well over the Euro in recent weeks, and this trend is reflective of the UK’s economic recovery, after businesses reopened and the number of vaccinated members of the public increases.
Announcements from the Bank of England (BoE) are always closely monitored by forex traders, and in the month of August, the BoE policymakers voted to leave its monetary policies unchanged. This meant that the lending rate remained at the historic low of 0.1% — a figure that has stayed in place since March 2020. The central bank also raised its inflation forecasts, which aligned with the prediction of analysts and economists. In reaction to this news, the GBP also edged higher than the USD.
Despite the fact that the outlook for the economy looks positive, investors should also take into account the context of this recovery. The level of economic activity is still 4% lower than pre-pandemic levels and the BoE expects that the rate of unemployment in the UK will continue to decline.
When speculating the movement in the forex market, a key piece of data to consider is the Gross Domestic Product (GDP) of the UK. In anticipation of the release of this data, this figure will reveal if the UK economy has recovered to the level that is expected. As always with any investment, ensure you carry out extensive research before opening a position.
In terms of predictions, in the third quarter of the year, the BoE expects the GDP to grow by 3%. This is in fact weaker than the forecast of their report back in May, and has been predicted as such, in response to a continuing rise in COVID-19 cases, and the fact that a high number of workers have been asked to self-isolate. This, of course, has a profound effect on the UK economy and its recovery, and in turn, impacts the value of the Pound.