The sterling pound is set for a bumpy ride for the remainder of the year as post-Brexit effects continue to exert further pressure on the currency. U.K. Prime Minister Theresa May confirmed the imminent volatility of the pound when she announced she would be invoking Article 50 in March 2017.
This has seen the pound underperform against the world's major currencies with a notable drop against the dollar and the euro. This trend is expected to continue through the rest of the year.
However, it’s not all doom and gloom for the pound as there was a slight resurgence that saw analysts pointing at the inflation data released on Oct. 18 plus further developments on Brexit as possible reasons for its brief recovery.
Nonetheless, having also seen the pound/dollar pair drop to $1.23, traders are looking to capitalize on the short-term volatility by trading the pair across various platforms that provide them with the opportunity to quickly close their open trades.
According to TradePlus analyst Corbin Bukowski, the pound could continue to trade below the $1.25 mark against the dollar through the first half of 2017 unless Britain’s separation process from the EU is expedited.
The pound earned the unlikely title of the second-worst performing mainstream currency in the world this year after slumping to $1.2115 against the dollar last month and also going down 0.2% on the day against the euro.
As Britain’s separating process from the EU continues to drag on, the pound’s immediate future remains volatile. The pound has already exchanged at 1 pound to $1.20 against the dollar and to 1.1153 euros leaving traders with little to ponder as they make their moves in the money markets. And after the inflation rate signaled some positivity for September, the rate fell below expectations again in October after dropping below 1%. Analysts had predicted a 1.1% inflation rate for the month.
Traders looking to capitalize on the pound capitulation may reap the rewards in the near future should the pound recover down the road. Developments on Brexit could play a major part with May confirming that she will be making a ruling on the U.K.’s position in the European Union early next year.
Such news items made the pound slump, surge, then slump again in a span of a couple of days, presenting traders with numerous opportunities to capitalize on the volatility. Analysts and investors are labeling this period of turbulence “the right time to buy” with many traders foreseeing further developments on Brexit as an opportunity for the pound to bounce back.
Despite the obvious struggles the pound has endured, it now appears to have established a comfortable trading zone against major currencies including the dollar and the euro. This could be a signal indicating that there is little room left for further downward movement, which means all hope is not lost.
And on the upside, there seems to be a lot of room for the pound to ray against major currencies should Britain put its house in order with regard to sealing separation from the EU. Furthermore, May has indicated that Britain might actually retain access to the EU single market even if it means paying the union.
Conclusion
In the short term, the pound is set for a rough ride. The pound exchange rates against major currencies are poised to dive further, which has led analysts to forecast a possible $1.10 against the dollar. This slump might still go on until May decides on the position the U.K. will take following Brexit.
Nonetheless, things appear to have stabilized significantly over the last few weeks after an unpredictable three-month period.
Disclosure: I have no position in any instrument mentioned in this article.
