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Pound Exchange Rate

The UK Pound: Next on our list of currencies is the UK Pound and US Dollar currency trading online forex with annapair. This pair is often referred to as cable, as the original communication between the UK and the US was via a cable link laid on the sea bed. OK, let's look at the factors which move the currency in our forex trading online.

Pound Exchange Rate : UK Pound Sterling

The UK currently ranks seventh in the worlds largest economies, and is the fifth largest importer, with the US ranking as the most important exporter to the UK, closely followed by Germany and France. Whilst part of the EU, the UK is unlikely to adopt the Euro in the foreseeable future, with the vast majority of the general public against both the EU and the Euro. In order for the Euro to be adopted, interest rates would have to drop significantly, and with reducing interest rates, traders would be encouraged to sell the UK pound, thus weakening the currency. The UK economy is one of the strongest in Europe, with low inflation and unemployment and this strength would suggest that adoption of the Euro is unlikely in the short to medium term.

Pound Exchange Rate : UK Economy

The UK economy has changed significantly in the last 25 years, with a decline in manufacturing and traditional heavy industry, and a move to a service orientated market, which now constitutes almost 80% of the labour force in sectors such as banking, finance and business services. The agriculture industry is the most efficient in Europe and supplies around 60% of its own food. Monetary policy is set by the BOE ( Bank of England ) having gained independence from central government in 1997, under the then chancellor Gordon Brown. The inflation target is set annually by the Government with the BOE managing interest rates to meet these targets. In the event that inflation exceeds the target, then the Governor of the Bank is forced to write to the Chancellor to explain the reasons. The bank meets once a month to discuss the economy and to set interest rates accordingly, and in addition they publish two quarterly reports on the broader economic outlook.

Pound Exchange Rate : Factors Affecting The UK Pound

The ongoing debate regarding the Euro is closely watched and any comments from Government or the Treasury can affect the currency, with favourable comments putting pressure on the UK Pound, and negative comments having the reverse effect. The currency pair trade in the market as the EUR/GBP.

Pound Exchange Rate : Major Economic Indicators
Interest rates -  Naturally these can cause major moves in currency. Often considered a blunt instrument, their effect in the market may last only a few hours or days. For long term traders they are an annoyance - for short term traders they represent volatility in the markets and a trading opportunity. One change in interest rates rarely happens in isolation without hints of others to follow. Currently the UK has one of the highest interest rates in major markets. Rates are set by the BOE at it's monthly meeting.
GDP - GDP is a classic lagging indicator and foremost in reporting on the health of the economy as it measures how fast or slow the economy is growing. For the UK , these figures are released on a quarterly basis at 8.30 am GMT. In the UK three different theoretical approaches are used to arrive at the GDP figures, with one focusing on output, the  second on input and the third on expenditure. This provides a broad summery of the economic well being of the country. In general a positive GDP prompts bullish moves, whilst negative comments prompt a bearish move, but these are generally well known in advance so the impact on the currency is generally muted.
CPI - Consumer Price Index. Another of the red hot indicators that is dissected by the currency and broader markets and measures the change in the cost of retail goods and services including food and energy. The report tracks the change in a basket of products. This is the key indicator used by the BOE in making interest rate decisions with an increase in CPI implying that it is costing more to purchase the standard basket of products and services. A more accurate measure of inflation is termed the core CPI as it's basket excludes volatile goods making the index more meaningful. The figures are released monthly by the Office for National Statistics.
Trade Balance - The trade balance indicates whether the country is exporting more than it is importing which is a positive trade balance, or importing more than it is exporting which is a negative trade balance. With a negative balance this implies that currency is leaving the country which could lead to a weakening of the UK Pound.

As with all the currencies there are many other news announcements that move both forex and stock markets, but these are the major ones - do you have to be an economist to be a forex trader - NO - but you do have to understand the broad economics of each country in order to take a view and help you make decisions for trading currency online.

If you would like a more detailed look at the UK pound exchange rate and it's relationship to the US dollar, I have recently published a new site which examines this pair in detail. Please just follow the link pounds to dollars. Now let's look at the next pair which is the AUD/USD - the Aussie Dollar.

 

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