In the international foreign exchange market, the pound occupies an important speculative share among the eight major international currencies . To speculate on the exchange rate of the pound, it is necessary not only to be familiar with the trading routines of the international foreign exchange market, but also to have a thorough understanding of the pound and the economic characteristics of the UK, which will affect the trend of the pound exchange rate . What are the factors.
One of the trends affecting the exchange rate of the pound: Bank of England ( BoE ) – Since 1997, the BoE has acquired the function of independently formulating monetary policy. The government uses the inflation target as the standard for price stability, generally measured by the Retail Prices Index excluding mortgages (RPI-X), and the annual increase is controlled below 2.5%. Therefore, although monetary policy is set independently of the government department, the BoE is still subject to inflation standards set by the Ministry of Finance.
Affect the pound exchange rate trend of the second: Monetary Policy Committee Monetary Policy Committee (MPC) – this committee is mainly responsible for formulating interest rate levels.
Affecting the trend of the exchange rate of the pound sterling: Interest Rates – the main interest rate of the central bank is the lowest lending rate (base rate). In the first week of each month, the central bank uses interest rate adjustments to send a clear monetary policy signal to the market. Changes in interest rates usually have a larger impact on the pound. The BoE also sets monetary policy through daily adjustments to interest rates on government bond purchases from discount banks (designated financial institutions that trade money market instruments).
Affect the pound exchange rate trend four: gilts – British government bonds are also called gilts. Likewise, the spread between the 10-year gilt yield and the yield on other national bonds or U.S. Treasuries over the same period affects the exchange rate between the pound and other currencies. 3-month Eurosterling Deposits – 3-month Eurosterling deposits. Sterling deposits held in non- UK banks are called Euro sterling deposits. The difference between its interest rate and the European deposit rate of other countries over the same period is also one of the factors affecting the exchange rate.
Affect the pound exchange rate trend five: Treasury Treasury – its function of formulating monetary policy has been gradually weakened since 1997, but the Ministry of Finance still sets inflation indicators for BoE and decides the appointment and dismissal of key BoE personnel.
Affecting the pound exchange rate trend six: sterling’s relationship with the European Economic and Monetary Union: The pound is often under pressure due to Prime Minister Tony Blair’s remarks about the possibility of joining Europe’s single currency, the euro . If the UK wants to join the euro zone, the UK interest rate level must be lowered to the euro rate level. If the public votes to join the euro zone, the pound must depreciate against the euro for the development of the country’s industrial trade. Therefore, any talk of the UK’s possible entry into the euro zone will weigh on the pound .
Affecting the pound exchange rate trend seven: Economic Data Economic Data – The main economic data in the UK include: initial unemployment, initial unemployment, average income, retail price index excluding mortgage loans, retail sales, industrial production, GDP growth, purchases Managers’ Index, Manufacturing and Services Survey, Money Supply (M4), Income and Housing Price Balance.
The eighth impact on the pound exchange rate trend: 3-month Euro sterling deposit futures – The futures contract price reflects the market’s expectations for the European pound deposit interest rate after 3 months. The difference in the price of futures contracts with the same period in other countries can also cause changes in the exchange rate of the pound.
Affecting the trend of the exchange rate of the pound 9: Financial Times 100 Index: the main stock index in the United Kingdom. Unlike the US and Japan, the UK’s stock index has a relatively small impact on the currency. But despite this, the Financial Times Index and the US Dow Jones Index have a strong correlation.
Affecting the trend of the pound exchange rate tenth: the impact of the cross exchange rate: the cross exchange rate will also have an impact on the exchange rate of the pound.
In addition to understanding the fundamental factors that affect the volatility of the exchange rate of the pound, investors also need to pay close attention to the dynamics of foreign exchange transactions in the international market and important political and economic events. Anything that affects the cross currency of the pound is a great opportunity to speculate on the pound