what does this mean for traders?
For over four years, the base interest set by the Bank of England has remained at a historical low of 0.5%. Having been at that level for so long, some people are anticipating that a rise in the interest rate could happen sooner rather than later, but in a surprise announcement, the Bank said that rates are likely to remain at their current level for now.
Almost immediately after the announcement was made last Thursday, the markets reacted almost instantly. While the FTSE 100 index rose by a healthy 50 points because of the fear over how an interest rate rise would affect tentative economic growth, the Pound fared less well. Sterling dropped by around one cent against the US Dollar to $1.5141 on the day.
Economic gloom lifting?
Despite the surprise nature of the announcement given by the Bank’s Monetary Policy Committee, it seems that a little continuity is needed to bolster any marginal economic growth shown in the UK. As well as reassuring the markets that interest rates were likely to remain static, they also announced that no changes would be made to their Quantitative Easing (QE) programme.
In another piece of welcome news for the economy which may help see the Pound bounce back, the Halifax, one of the UK’s biggest lenders revealed that house prices were rising by more than expected. They said that in June, prices rose by 3.7% year on year, which is a tell-tale sign that the housing market at least is showing welcome signs of recovery following a turbulent period.
Weak growth underpinned by outside factors
Although housing is bouncing back, the same cannot be said of the wider economy, something which is helping to drag the Pound down against other major global currencies. Growth, although existent, is pretty weak at the moment, while global problems such as the rising cost of borrowing are also undermining the UK’s performance.
Anyone trading the currency markets will have plenty of reason to feel anxious about the fortunes of Sterling. Should the anaemic level of growth fall, then confidence in Sterling’s ability to stay strong against the Dollar, Euro et al will fall in tandem with that, making exports to major trading partners, among other things, less lucrative than they might have been previously.
Is forex trading still viable with Sterling?
As explained in this video from City Index UK, forex trading is something that will appeal to anyone with a keen eye on Sterling’s fortunes in the currency markets, but how does it work and what would be needed to do when trading? You need to:
- You need to apply for a Forex Trading account
- You need to choose a currency pair to trade with e.g. GBP/USD
- You then have to decide whether to go long or short – the former means trading on one half of the pair rising against the other in value, and the other means going in the opposite direction