If you look at the course that the British Pound (GBP) has taken since the EU referendum last June, it is not hard to determine a correlation between the performance of the currency and the major updates released by the government. The announcement of the referendum vote and Prime Minister Theresa May’s desire to pursue a hard Brexit sent the GBP plummeting to a 31-year low, for example, while a high court ruling which determined that Parliament would have to vote on the decision to leave the EU sent values soaring by as high as $1.2493 against the U.S. Dollar (USD)
How Brexit Has Affected the Value of the Pound
As we can see, the political trigger of Brexit has had a key bearing on the performance of the GBP. While trends that confirm the UK’s separation from EU and the immanency of Brexit tend to trigger the devaluation of the currency, for example, those that suggest potential delays to the process or raise the prospect of maintaining single market access lead to marginal gains. This has created a cycle of minimal growth and decline, with brokers ETX Capital confirming that the GBP has remained trapped in a narrow trading range for the last two financial quarters.
The cyclical nature of the pound (and its overall, downward trajectory) has also created considerable uncertainty for investors, deterring those who like to speculate on the long-term performance of currency pairings.
The narrative is slightly different for day traders, of course, who profit primarily on the back of political risk and enhanced volatility within the marketplace. This is because the forex market enables them to profit even in a depreciating climate, compelling day investors to speculate by assuming short-term trading positions against volatile and devalued currencies such as the GBP. As all positions are opened and closed during a single session or 24-hour period, traders can react swifty to real-time developments and either show support or hedge against a specific pairing as the market dictates.
How Will Article 50 Impact on the Day Traders?
This same principle can be applied to the imminent triggering of Article 50, which will devalue the GBP further and create even greater uncertainty among the majority of investors. This actually creates a short-term window of opportunity for day-traders, however, as they will be able to hedge against the pound in the immediate aftermath of the official announcement by supporting the USD/GBP pairing or investing in the Euro (EUR).
As a result of this, day traders will be able to optimise their gains while the pound continues to depreciate, before they prepare for an inevitable rebound as the market consolidates prior to the commencement of exit negotiations.