Brexit is upon us, and the UK’s departure from the European Union will inevitably have some massive consequences for the UK’s economy, as well as the state of the global market as a whole. But how have the Brexit proceedings affected the pound on the forex market, and what could Brexit mean for forex trading in the future? Read on to find out the story so far, and some predictions for the future.
The pound’s 2020 story
As with most currencies the pound experienced a significant dip around March, dropping to about $1.18 in one of the steepest declines in memory, when the Covid-19 pandemic first hit the world. However, looking at the statistics for 2020 as a whole it appears that the pound has ultimately recovered, and while it saw volatile rises and falls the pound has fared slightly better over the very tumultuous year of 2020 than other currencies such as the dollar and euro.
The pound suffered over 2020 as a result of the drawn-out Brexit negotiations, falling in response to uncertainty over the terms of the UK’s departure from the EU and rising on hopes of a finalised deal. Now that Brexit has actually taken place and the UK has completed the separation process, the pound has slowly but surely started increasing in price as investors become more confident about the current forex landscape, and the effects of Brexit on the forex market as a whole begin to become more apparent.
The future of the pound post-Brexit
As Brexit only formally took place on 31 January 2020, and the UK only completed its separation from the European Union on 31 December 2020, it is too early to say precisely what lasting effects Brexit will have on the pound’s forex presence. The Covid-19 pandemic will also continue to impact the forex market in ways that could make Brexit’s impact on forex less apparent.
However, the pound’s current performance as of February 2021 appears to indicate that things will go well for at least the short term, with GBP currently trading at $1.4 in a three-year high. But past performance is not an indicator of future results, and with the current numerous socio-economic factors at play the forex market is more volatile than it has been in a long time.
Brexit is likely to have a larger impact on trading other financial instruments such as shares and commodities, as those will be directly affected by changes to the way UK businesses import and export goods with the EU, and by extension the rest of the world.
The forex market is more insulated from these kinds of effects due to the high liquidity of forex assets and the frequency of buyers and sellers, so the impact of Brexit on wider global trading is not likely to affect it as much, but these unprecedented times could result in unprecedented reverberations across the global forex market.