For the past few years, Brexit was on everyone’s lips, but always with a dose of uncertainty. The withdrawal of the UK from the European Union has caused lots of speculations, political debates and changes in the world. But last December, when the transition period has ended, people started to get some answers about how things will work in the future, regarding certain industries and sectors.
One of these industries is the financial one, where we can include the foreign exchange market. Therefore, in this article, we’ll discuss the effects that Brexit had or will have on forex trading and traders in the UK.
The GBP/USD Pair
One of the most obvious effects of Brexit is the shift of the currencies. As many of you know, Britain’s current account deficit has been widening for a while and Brexit will most probably put a stop to all inflow of foreign capital. What could that mean? It means that the UK could possibly lose its position as the number one investment location in the world. That will result in the weakening of the pound sterling, which could affect the GBP/USD pair.
Forex Traders live in uncertainty at the moment, given that it’s not very clear for them what are the exact effects of Brexit. And more than that, their performance highly depends on the evolution of the global pandemic as well. The fact that vaccines have already started being rolled out all over the country and it’s happening fast, could pave the way for economic recovery.
Foreign relations and trade deals with other countries are still a bit unclear, so as a forex trader, you need to be up to date with any news so you can plan your trading strategies. And while doing that, you can look into what are forex robots, a strategy that could be helpful in these times of uncertainty.
Costs of Trade Transactions
After Brexit, the UK cannot be part of the European Customs Union anymore which will definitely result in an exponential increase in controls over any goods manufactured in the UK that will cross the European borders. According to the British Retail Consortium, a 29% increase is expected for food and beverages product prices that are imported from the EU; as well as a 7% for non-food products. That means that consumers will spend their money in a different way which will have effects on the economy as a whole. This will definitely have an impact on the british forex market as well.
It’s not an unknown fact that for the past 10 years, property prices in London have been increasing constantly. And that was somehow a natural increase, given the financial status of the city who has become a global finance hub. This gradual process has led to the overvaluation of the pound sterling which highly affected the exchange rates. And the fact that big investors on the market put their money on real-estate, that caused more and more capital inflows into the country.
After Brexit, the reversed equation might happen: London will no longer be the number one market in the world, property funds will outflow and London property prices will go down.
UK companies from all over the world will have to face repercussions of Brexit, but not all of them are negative. Actually, UK-based companies situated outside of the country, could have better performances after Brexit, given the appreciation of the US dollar. The companies that might suffer are actually based in the UK, since the domestic currency will be declining and home-based stocks will take a hit. As for the EU-based companies, there will be huge sell-outs on the European markets, given that trading with the UK will become expensive.
All in all, the UK is not the only entity that will be affected. The cost of capital for European businesses will rise too, which will weaken the EU economy as well. Brexit will most probably continue to affect forex trading even though the transition period has ended for a few months already. It’s expected for us to see many other changes related to the economy and trade deals in the near future.