GBP/USD - Will Brexit Decrease the Value of Trade?
December 30, 2020 (Investorideas.com Newswire) While the issue of whether or not the UK can secure a trade deal with the EU has finally been resolved in the affirmative, it's hard to quantify just how the pound or the economy will fare in the months and years to come.
Not only this, but we must also recognise the impact that protracted Brexit negotiations have had on the value and performance of the pound, which is a significant concern for households, businesses and investors alike.
In this post, we'll explore the impact of Brexit on the value of GBP to USD trades, while also casting our eyes on the future of the Euro.
The Impact of Brexit Uncertainty
There's no doubt that Brexit uncertainty has caused the pound to trade within an ever-depreciating range, with the relationship between the GBP and the greenback offering a prime example of this.
This popular pairing has certainly experienced significant volatility during Q4 in particular, with Jeffrey Halley, the Senior Market Analyst at Oanda, attributing its recent fall from 1.3410 to 1.3225 solely to Brexit posturing on both sides of the divide.
This increased slightly when Boris Johnson headed to Brussels and the prospect of an amicable deal soared, with Halley predicting that the 1.3500 mark seemed to represent a short-term for sterling if a trade agreement was ultimately struck.
This appears to have been borne out in recent days, with GBP/USD settling above the resistance at 1.3540 while the greenback continues to lose ground against a broad basket of major and minor currencies.
How Will This Impact on Trade?
The decline of the dollar has certainly helped to boost the value of the GBP/USD, with the delayed stimulus rollout and the continued impact of Covid-19 infection rates exacting a heavy toll.
To this end, the US Dollar Index is now testing the support at yearly lows of 89.75, and if it ultimately settles below this level, it will again further downside momentum in the near-term.
For investors with a short-term outlook, there's little doubt that the GBP/USD pairing offers relative upside at present, and will continue to do so into Q1 2021. Although this could well change given the relatively thin nature of the Brexit trade deal and the failure to make provision for services (which account for nearly 80% of the UK economy), for now this is a viable target for currency investors nationwide.
Interestingly, the resolution provided by this deal and the likelihood that the European Central Bank (ECB) will loosen monetary policy in the near-term could also boost the performance of the EUR/USD pairing.
The single currency has certainly moved higher during the most recent trading sessions on Tuesday, as it looks to take on the 1.23 handle that has typically provided resistance.
While it has yet to be seen whether the EUR/USD will break through this barrier, it's undoubtedly poised to embark on an upward trajectory in the near-term.
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