How Does Brexit Affect Currency Traders?

On 29th March, the foreign exchange market had to deal with shocks – both positive and negative- after the United Kingdom left Brexit. Since then, there have been negotiations between the EU and Britain which have become a major topic of discussion on every foreign currency trader’s lips. Every decision that has so far been executed poised a great influence on the global currency market around the world. Today, we’ll explore the effects forex traders have to deal with in the forex market after Brexit took place.

 

  • Placement of new tariffs on exporters leading to an increase in trade transaction costs

 

It is one of the greatest disadvantages of Brexit. As such, the UK will no longer be part of the European customs union meaning that there will be a massive increase in tariffs against manufactured goods from the UK. Therefore, this might result in significant delays in administration formalities.

For instance, the BRC reports that there will be a 29% increase in prices of food-based products and beverages imported by the UK from the EU. On top of that, traders of non-consumable goods such as textiles will be slapped by a 7% increase. The result of all these means significant repercussions on the currency market.

 

  • The British Pound plummeting against the Dollar

 

Trading balances significantly affect currencies. Over the year, the deficit of Britain’s account has been rising, and with Brexit influence, there is a likelihood of having an influx of foreign capital to the UK. The first consequence of that is that the UK will lose its status as a premier investment hub in Europe.

By them losing their status, it would mean the sterling pound will become weak to compensate the imbalances that have shot up. Trading experts estimate the GBP to fall as lows as 1.20 against the dollar. That’s terrible news for a foreign currency trader trading GBP/USD pair.

 

  • Home-based stocks will plummet

 

As the price of the US dollar appreciates, companies based in the UK while internationally could overperform. Nonetheless, as the UK-based international earners make a profit, the home-based stocks will significantly plummet. All these will make the firms based in the European Union to see making a trade with the United Kingdom being an expensive affair. This will result in a huge sell-out by European markets and consequently a hard time for forex traders in the UK.

 

  • A decline in London property prices

 

From 2012, the prices of property in London have been on the rise as a result of the city being a certified international financial region. Due to this, there was an overvaluation of the sterling pound resulting in a push up in the exchange rates.

Consequently, most investors opted to channel their funds into real estate because of its high-safety setup leading in massive capital inflows in the region. Therefore, after Brexit UK will no longer be a distinguished financial hub because of market outflows of property funds. Furthermore, buyers from other countries will not buy a property based in the UK; therefore, foreign currency traders will have a pretty hard time.

 

  • The bank of England might have to reduce their interest rates

 

Inflation levels rose up after March 29th; therefore, forcing the central bank of Britain to increase their interest rates. For the country to counter this, they have to implement a monetary policy that might be implemented in a case where the unemployment rates rise.

That being said, some currency traders would still be hoping that PM Theresa May will strike a lucrative deal with the EU. Otherwise, most of the currency traders will surely have a hard time trading pairs having the GBP.

Final Thoughts

Brexit is a nightmare not only to foreign currency traders in the UK but also in other countries. That being the case, there is an expectation of the cost for the European business rising; therefore, weakening the European Union which is already considered to be a red zone. The effect of all these will be significantly felt by currency traders.

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