With the Brexit still fresh in people's minds, it's no surprise that the GBP/USD markets have remained relatively stable over the past month.
It all stems back to when the Brexit referendum was first announced. Experts warned the British public that a vote to leave Europe could have a devastating effect on the economy both in the short-term and long-term. While this devastating effect has not as of yet come to light, it cannot be ignored that the Pound has suffered a rather steep decrease in value against the benchmark Dollar.
It was only this week that the United Kingdom announced their GDP growth figures for the second quarter of the year - and that left many economic experts in awe. The UK showed that growth in the majority of sectors has continued to grow, and that consumers are now spending more than ever before in all spaces; such as retail and home improvements. Consumers are not afraid to spend their hard earned cash; which could mean that a potential economic crash isn't so likely after all.
With growth happening in the UK however, the GBP/USD price still hasn't changed much. Currently, the markets are dictated by traders who buy and sell Dollars and Pounds on trading platforms such as CMC Markets; and these traders often set the benchmark for where the currencies move to. In times of uncertainty, such as Brexit, the Pound would drop in value against the Dollar. Likewise, in times of economic growth, the Pound would typically grow in value against in the Dollar.
What makes the whole issue even more interesting is that consumer lending in the UK has dropped quite significantly. Mortgage Approvals through July were down to 60.91K, compared against the 61.9K prediction. Likewise, consumer credit was down to 1.181B, against the prediction of 1.857B. With consumers lending less, and spending more, this has left experts rather puzzled as to where the GBP/USD price is really heading.
In total, Net Lending against dwellings in the UK printed a total of 2.7B veruses a total of 3.1B (expected). Less people are refinancing homes, which could indicate that consumers in the UK have a positive outlook on the financial prospect of the country.
However, all of this needs to take in consideration the most recent interest rate cut by the Bank of England. These statistics have not taken into consideration the most recent cut by BoE; and this cut could have a detrimental effect on the economy as a whole. We will need to wait a few weeks, or even months before we can forecast the short term and long term effects of the interest rate cut.
The Anti-Brexit camp often pinned danger on small, medium and large businesses alike; spreading fear through uncertainty. One of the main talking points of the whole debate lay in the proposed fact that businesses would need to make redundancies as UK spending power lessened. As of yet, the job market in the UK has not shown any signs of slowing down or taking a negative hit.
In fact, unemployment has dropped in-line with expectations; leading many to question whether there will be any real short-term negative effects of the Brexit vote.
Looking to the GBP/USD price, it's hard to determine where the countries economics is heading. It was completely expected that the Pound would go down in value after the Brexit vote; due to uncertainty surrounding the economy. With a drop now taken place, the UK continues to amaze investors and traders alike; showing growth in all sectors. It's now whether those traders will turn into a bullish market.
According to the DailyFX Speculative Sentiment Index (SSI), traders are mostly adopting longs on the GBP/USD market. The SSI is often looked at a contrarian indicator, and these figures could show that potential weakness lies ahead.
The true reality is, however, that the UK's economy is growing and nobody can predict whether the economy will continue to grow or will worsen following the actual European exit. It could be two years, or longer, before the UK chooses to leave Europe; and only then will we know the true impact of Brexit.
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