In mid-August, major U.S. bank Morgan Stanley lowered its forecast for the Pound to Euro exchange rate. Analysts are now extremely bearish and predict that the GBP/EUR will fall below parity by early 2018. This isn’t the only bank that has a pessimistic outlook on the key currency pair. Goldman Sachs is also maintaining a negative view on the Pound to Dollar exchange rate, which is expected to continue declining as the USD strengthens.
Traders who are bullish on the GBP/EUR currency pair usually open long positions. This means that they are simultaneously buying the GBP while selling the EUR. On the contrary, those who are bearish go short the currency pair and buy the EUR while selling the GBP. Smart traders take conditions affecting both the EU and Great Britain into consideration, as each region’s economic situation has an impact on the performance of the pair.
The US Dollar has fallen dramatically this year, while the Euro is expected to continue rising, as the Pound weakens.
It has now been well over a year since the UK voted to leave the European Union. In the aftermath of the historic Brexit referendum, political risk has increased substantially and tense negotiations regarding Britain’s “divorce” from the continental bloc have weighed heavily on the value of the Pound. The lowered value of the British currency gives UK households less purchasing power, which could ultimately reduce levels of consumption and negatively impact UK economic growth.
The Euro, meanwhile, has strengthened because of decreased European political conflict, while the U.S. Dollar has dropped amid doubts surrounding the schedule for setting U.S. monetary policy.
The Fed has increased interest rates twice this year, which normally supports the USD. However, there is now marked uncertainty regarding President Donald Trump’s ability to implement his pro-growth campaign, which promises tax reforms, major investments in infrastructure, and an easing of the regulatory burden for small business owners. These concerns are all pushing the USD down. At this year’s Jackson Hole conference, Federal Reserve Chair Janet Yellen’s speeches contained little information about monetary policy, and the probability of another rate hike this year is now less than 40%, according to industry experts.
Whether you are using a long-term strategy such as carry trading, or a short-term one such day trading, you can trade currencies and take advantage of price movements through one of the many Forex brokers on the market. UFX’s currency trading platform can enable you to benefit from the best trading conditions, including tight spreads and advanced trading charts, to help you become a successful trader.