Currency Profile Of British Pound (Part III)
UK is the bridge between US and EU. UK tends to share a more common set of views with the United States. In the present financial crisis, both the US and UK government had worked closely to avoid a meltdown in the capital markets. Economically, the United Kingdom is more free-market oriented than Europe. However at the same time, given its history and its geography, the United Kingdom cant totally disassociate itself from Europe. The upshot is a currency that is affected by politics at home and on the two continents to which its destiny is so closely related.
The GBP/USD is one of the most liquid currency pairs in the world. 6% of the all the global currency trading involves GBP as either the base or counter currency. The British Pound GBP) is active against the dollar and the euro, offering good opportunities to trade both pairs (GBP/USD and USD/GBP).
GBP is also in the four most traded major currency pairs EUR/USD, GBP/USD, USD/JPY and USD/CHF in the world. One of the reasons for GBP liquidity is the countrys highly developed capital markets.
Many hedge funds are located in London. UK is an important foreign investment destination. Many foreign investors seeking to diversify their investment other than the United States send their funds to the UK. Foreigner investors need to convert their local currency into GBP in order to create these investments.
GBP had one of the highest interest rates in the developed countries. Although Australia and New Zealand had still higher interest rates but their financial markets are not as well developed as UK. GBP was full of speculators one two years back.
Carry trading is a long term fundamental trading strategy that takes advantage of the interest rate differentials between the two currencies as well as price appreciation in the currency pair. Carry trading was popular with many hedge fund managers. Carry traders would use GBP as the lending currency taking advantage of the high interest rates and would go long against USD, JPY and CHF.
The BOE was forced to lower the interest rates to cope with the present financial crisis. The present global financial crisis has taken a heavy toll on the British Banks as well. There have been a number of high profile bankruptcies. UK Treasury had to intervene heavily in the market by pumping money into a number of failing banks in order to stabilize the financial markets.
Interest rates have been lowered. An exodus of carry traders took place that increased volatility in GBP with the lowering of the interest rates. Interest rate differentials between UK gilts/US Treasuries is a barometer for GBP/USD flows and UK gilts/German Bunds is a barometer for EUR/GBP flow. These interest rate differentials are widely watched by the professional forex traders to judge where the money will flow between US, UK and EU.
Will UK join EMU? This is an important question that still can determine the long term fundamentals of GBP. Indications on adopting the Euro usually put negative pressure on GBP while further opposition to Euro boosts GBP. The three month eurosterling futures reflect market expectations on UK interest rates three months into the future and can help predict fluctuations of GBP/USD.
GBP/USD currency pair tends to be more sensitive to the developments in the US economy. GBP/USD currency pair is more liquid than EUR/USD pair. However, EUR/GBP is the leading gauge for GBP strength. EUR/GBP is a more pure fundamental pound trade as EU is the UK primary trading and investment partner. GBP has positive correlation with the energy prices. You must keep these facts in mind while determining your bias for GBP as a currency trader. - 23208
The GBP/USD is one of the most liquid currency pairs in the world. 6% of the all the global currency trading involves GBP as either the base or counter currency. The British Pound GBP) is active against the dollar and the euro, offering good opportunities to trade both pairs (GBP/USD and USD/GBP).
GBP is also in the four most traded major currency pairs EUR/USD, GBP/USD, USD/JPY and USD/CHF in the world. One of the reasons for GBP liquidity is the countrys highly developed capital markets.
Many hedge funds are located in London. UK is an important foreign investment destination. Many foreign investors seeking to diversify their investment other than the United States send their funds to the UK. Foreigner investors need to convert their local currency into GBP in order to create these investments.
GBP had one of the highest interest rates in the developed countries. Although Australia and New Zealand had still higher interest rates but their financial markets are not as well developed as UK. GBP was full of speculators one two years back.
Carry trading is a long term fundamental trading strategy that takes advantage of the interest rate differentials between the two currencies as well as price appreciation in the currency pair. Carry trading was popular with many hedge fund managers. Carry traders would use GBP as the lending currency taking advantage of the high interest rates and would go long against USD, JPY and CHF.
The BOE was forced to lower the interest rates to cope with the present financial crisis. The present global financial crisis has taken a heavy toll on the British Banks as well. There have been a number of high profile bankruptcies. UK Treasury had to intervene heavily in the market by pumping money into a number of failing banks in order to stabilize the financial markets.
Interest rates have been lowered. An exodus of carry traders took place that increased volatility in GBP with the lowering of the interest rates. Interest rate differentials between UK gilts/US Treasuries is a barometer for GBP/USD flows and UK gilts/German Bunds is a barometer for EUR/GBP flow. These interest rate differentials are widely watched by the professional forex traders to judge where the money will flow between US, UK and EU.
Will UK join EMU? This is an important question that still can determine the long term fundamentals of GBP. Indications on adopting the Euro usually put negative pressure on GBP while further opposition to Euro boosts GBP. The three month eurosterling futures reflect market expectations on UK interest rates three months into the future and can help predict fluctuations of GBP/USD.
GBP/USD currency pair tends to be more sensitive to the developments in the US economy. GBP/USD currency pair is more liquid than EUR/USD pair. However, EUR/GBP is the leading gauge for GBP strength. EUR/GBP is a more pure fundamental pound trade as EU is the UK primary trading and investment partner. GBP has positive correlation with the energy prices. You must keep these facts in mind while determining your bias for GBP as a currency trader. - 23208
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try These 1500 Pips A Day Forex Signals From Heaven. Know Forex Rebellion!
posted by X - Men @ 6:32 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home