Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
The cable has been prime territory for Forex CFD traders in recent months, the unpredictability surrounding the ongoing Brexit debacle leading to huge shifts in the value of the Sterling.
While wild swings in currency exchange rates are not good news for businesses, or anyone else trying to plan for the long-term, they are very good news for Forex traders. The extreme volatility has been prime territory for both scalpers and position traders. Scalpers have been taking advantage of the intra-day surges and collapses in value, while position traders have loved the multi-year lows and subsequent reversals as the political outlook has altered.
Jeffrey Cammack is COO of FXScouts, a Forex broker comparison portal, and he says that Brexit has led to a surge in interest in people looking for a way to profit from the chaos. He points out: “This political mess has been a godsend for Forex traders and judging by the medium-term outlook, it will continue to be so for some time.”
So where is the Pound headed next? With an election looming – and the Brexit fight far from over – lovers of stability are in for a rough ride.
Brexit uncertainty replaced by election uncertainty
Sterling made strong gains in early October on the back of the expectation that a Brexit deal would pass through Parliament, removing the uncertainty that has clouded British politics for the best part of a year. While those hopes have not been dashed, the lack of an immediate deal and the added uncertainty of a general election has made investors wary, with some more concerned by the possibility of a Corbyn government than a no-deal Brexit.
With the election now a month away, conventional wisdom dictates that a Conservative majority would result in a swift Brexit deal and any polling showing a clear lead for the Tories is supportive of Sterling valuations. But British general elections are notoriously unpredictable – and with a short campaign and a larger-than-usual set of uncertainties, the result is far from clear.
Until recently, polls suggested a lead of approximately 15 points for the Conservative Party, but that lead has been eroded by an increase in support for Labour and the newly resurgent Liberal Democrats. Throw into the mix, the very real possibility of the Brexit Party stealing a large number of votes from the Conservatives and the election is looking more unfathomable than ever.
None of this has been helped by a fairly disastrous start to the campaign by the incumbents and many analysts are now predicting that no party will win a clear parliamentary majority.
Sterling and a hung parliament
If no party can gain a clear majority, we are almost definitely preparing for a hung parliament. This will likely lead to weeks of political horse-trading that can only further negatively impact the economy and the Sterling. Furthermore, the final outcome of any political negotiations would be complete guesswork at this point.
Whatever the eventual outcome, we can expect sudden changes in the political outlook – not entirely dissimilar to what we have witnessed over the last year – and matching volatility in the foreign exchange markets.
Taking advantage of uncertainty
Jeffrey Cammack points out that we may in the calm before the next storm: “Currently, the big financial players in the Forex market are feeling pretty bullish about the Sterling, we’ve seen seven straight weeks of declines in participants shorting the Pound. But is this just setting up a new round of steep declines in the New Year?”
“Once we’re amidst the chaos of the election results I would not be surprised to see the knives out again and Forex traders will be looking to take advantage of another round of uncertainty.”
