Forex Year Review - GBP

Published date: 31/12/2019
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What a year its been in FX markets. One of the main issues we had seen in comparison to the past was a lack of volatility. GBP/USD was one of the best pairs to trade but this was largely due to political developments inspiring market moves. In this article, we will run through the currencies and review the price action from the past year. From politics to central banks there have been some amazing developments and important learning points for the year ahead.

GBP

The pound was dominated by politics this year but there was a very random end to the year that no analyst could predict. Theresa May started the year as the UK Prime Minister but she could not get any of her Brexit policies through Parliament as the Conservatives didn't hold the majority and the DUP didn't agree with her Brexit deal. She then danced her way to destruction as the government issued many confidence votes. She finally gave in with a very emotional exit speech and Boris Johnson won the leadership with his own party voting him in to replace May. Amazingly Boris managed to agree a deal with Junker and Co. in Brussels but the UK parliament rejected the deal once again. Then there was no choice but to head for a December snap UK general election. Boris absolutely crushed Labour leader Corbyn to earn a majority in UK parliament. Moving forward now, Johnson has the power to put through his deal with the backing of his own party and GBP could be governed by developments and not political stalemates. 

Next Year

In 2020 we are looking forward to more Brexit shenanigans as Boris is looking to take the UK out of the EU by January 31st. This is likely to have its own ups and downs but Boris will probably leave with the deal he negotiated despite all the recent tough talk. Looking past that date, the negotiation of trade deals will come into focus but these can take some time and the basis of the agreements will be the World Trade Organisation (WTO) structure. The GBP/USD price has settled at 1.3138 leading into 2020 and if the trade deals run smoothly the price could push higher. From a Bank of England perspective, Mark Carney will be leaving and Andrew Bailey will be in charge. In recent BoE meetings, 2 members have voted to cut rates while the 7 others voted to keep things the same. This could lead to a more accommodative stance after the UK leaves the EU. With both fiscal and monetary policy supporting markets but the price of Sterling could fall if any stimulus is added or rates are cut. As always anything can happen at any time. Boris is not the most predictable person in the world but he seems to have won the backing of the nation now it's up to him to deliver.

Chart

Looking at the GBP/USD chart, the low of the year is 1.1959. The high 1.3515 and the years opening price 1.2743. The easiest way to think about these levels is extreme points. 1.3515 would be the level to watch if things go well and get euphoric. If we crash out without a deal and all hell breaks loose then 1.1959 would be the area of note, but now we have moved in from all the political uncertainty this scenario looks unlikely. For next year the potential for higher levels beyond looks like it could be probable and of course, this depends of the strength of the dollar too. 

 

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