Forex Marketing in United Kingdom

The United Kingdom of Great Britain and Northern Ireland (UK) is an island country that sits north-west of mainland Europe. It is made up of mainland Great Britain (England, Wales and Scotland) and the northern part of the island of Ireland (Northern Ireland). It has several smaller islands. The UK is low lying in the east. It has mountains in the north of England, in Scotland, in Northern Ireland and in Wales.

Under the ruling of the Queen, the U.K. is considered a constitutional monarchy but is governed through a parliamentary system that is based in England‘s capital of London. The U.K. used to be part of the European Union. Unfortunately, this means that having a Schengen visa won’t let you travel through the U.K., you have to get a separate visa to be allowed.

United Kingdom: Facts and Figures

• Neighbors: Ireland, Germany, France

• Size: 94,060 square miles

• Population: 67,545,000 (22nd, 2019)

• Density: 661.9 people per square mile

• Capital City: London (population 8,546,000)

• Head of State: Queen Elizabeth II

• Head of Government Prime Minister: Boris Johnson

• Currency: British Pound (GBP) or sterling

• Main Imports: Manufactured goods, machinery, fuels, foodstuff

• Main Exports: Manufactured goods, fuels, chemicals, tobacco, David Beckham, Simon Cowell

• Imports Partners: Germany 12.6%, China 8%, Netherlands 7.5%, France 5.4%, U.S. 6.5%, Norway 4%, Belgium 4.4%

• Exports Partners: Germany 11.3%, U.S. 10.5%, Netherlands 8.8%, France, 7.4%, Ireland 6.2%, Belgium 5.1%

• Time Zone: GMT

• Website: https://www.gov.uk/

Economic Overview

The economy of the United Kingdom is a highly developed social market and market-oriented economy. It is the fifth-largest national economy in the world measured by nominal gross domestic product (GDP), tenth-largest by purchasing (PPP), and being 21st highest by GDP per capita, constituting 3.3% of world GDP. After all, it is Britain that started the Industrial Revolution. The U.K. also had the worlds largest

empire back in the day. So for the past 300 years or so, the U.K. has been a relevant world power. Now thats what you call consistency!

When it comes to trade, England is a net importer of goods with a consistent trade deficit. Its largest trading partner is the Eurozone, more specifically Germany, which shouldn‘t be taken as a surprise because Germany is a stone’s throw away across the English Channel.

Trade scheme with the Eurozone entails for over half of the UK‘s trading project or activity. The U.S., on an separate basis, but still continue the U.K.’s largest trading partner.

British doesn't only have cool accents and hotties like Kate Beckinsale, but it is a home to arguably the oldest major heart of finance in the world: London. Having a financial hub like London amplifies Englands place in world trade.

Monetary & Fiscal Policy

Monetary policy is action that a country's central bank or government can take to influence how much money is in the economy and how much it costs to borrow. As the UKs central bank, they use two key financial policy tools. First, they set the interest percentage they charge banks to borrow money from us – this is Bank Rate.

Let's see some technicalities just for you about : The oldest central bank in the world is the Bank of England (BOE).

In the olden days, when England was on the verge of economic expansion, government leaders realized that they need an entity to help facilitate international trade. Enter the Bank of England. In 1694, the BOE was founded to help facilitate trade and growth for England.

Currently, the main financial policy aim of BOE is that of maintaining price stability while at the same time, fostering growth and employment. The way it is, the BOE is aiming for a target hike of 2.0%, which is measured by the consumer price index (CPI).

For them to meet this target, the BOE has been granted the magical power to change interest rates to levels that they believe will allow them to meet this target. The group in the BOE that is in charge of determining interest rates is the Monetary Policy Committee (MPC).

Following for announcements on changes in financial policy, The MPC holds monthly meetings, which are closely including changes in the interest percentage. This applies to all other things British, interest rates have a different name in England. In England, the interest percentage is called the bank repo rate.

The main policy tools used by the BOE‘s Monetary Policy Committee are bank repo rate and open market operations. The bank repo rate is set by the BOE for its own operations in the market to help meet the MPC’s inflation target. Any time the MPC changes this rate, it affects the rates of commercial banks set for their savers and borrowers. This, in turn, will affect spending and output in the economy, and eventually costs and prices.

Similar to other central banks, if the BOE raises the repo rate, they are aiming to curb inflation. On the other hand, if they lower the rate, this means, they are aiming to stimulate growth in the economy. When the BOE engages in open market operations, the BOE buys and sells GBP denominated treasuries and securities to control the donations of money. This is a substitute or another way to increase liquidity in the financial markets.

When the BOE feels that there is a need to stimulate the economy, they will “print more money” and inject this into the money provided through the purchases of the government and corporate securities. Moreover, if the BOE feels like the economy has had enough candy, they will sell more securities, effectively “taking back” money from the economy.

Getting to Know the GBP

GBP is the abbreviation for the British pound sterling, the official currency of the United Kingdom and its regions. The GBP must be a pretty familiar baby Because it has a lot of cool nicknames.

Apart from being called the Sterling and the Pound, GBP pairs have awesome nicknames like Cable (GBP/USD) and Guppy (GBP/JPY). Impressive, huh？

I like to bust a move

How does it happen GBP/USD to be one of the most liquid currency pairs in the forex market.

Remember, London has long been a major heart of finance in the world. With major business transactions taking place every day, lots of moolah goes in and out of London. Still, the GBPUSD only entails for 14% of daily global trades, making it just the third most active pair traded. This is probably the reason why spreads on the GBP/USD tend to be a pip or two more than that of the EUR/USD and the USD/JPY.

and traders like me because Ive got some nice curves.

With so many big-time corporations being based in London, there are many highly attractive investments to be found in the U.K. market. Couple this with having some of the higher interest rates (usually) in the middle of the major currencies, investors may find British securities to be more attractive.

In order to get their hands on these products, there is need for investors to first purchase some GBP.

I'm nimble during the London session..

GBP/USD trading volume is the highest during the European session, with potential for strong moves during the New York session when key U.K. and U.S. data is released. The Asian session doesnt usually provide much action on move when the European traders are still in bed while U.S. traders have just finished the day.

but be careful cause I can get kind of rowdy!

The GBP pairs are very prone to volatile moves because of their lower level of liquidity compared to that of the EUR.

With liquidity growing thin at certain times in the market, the GBP can get caught in one direction, especially if there are large buy or sell orders in that direction. GBP pairs tend to react more strongly to surprise economic data releases, when Compared to other currency pairs

Important Economic Indicators for the GBP

• Consumer Price Index (CPI) – The BOE looks at this evolve an estimate of inflation. It measures the change in the prices of consumer goods.

• Unemployment Rate – This is the estimate of how many unemployed people there are in the UK economy. Analysts look at this caused very carefully because it could be a leading indicator of future spending. But How does it happens？ Well, if a person is jobless, it means he has no money. When people lacks money, then no one would be able to afford pay for even a pizza

• Gross Domestic Product (GDP) – This data reflects the true state or city of the UK economy. It highlights either the economy is growing and booming, or if it is stuck in the English Channel and drowning.

• Purchasing Managers Index (PMI) – This index surveys business managers and asks them their view of the current economic landscape. Scores above 50.0 shows improving conditions which may lead to expansion, while scores below 50.0 hint at possible contraction.

• Gfk Consumer Confidence report -This report gauges consumers confidence about current and future economic conditions.

The more confident consumers are pertaining to the city of the UK economy, the more possibly they will be willing to spend.

What Moves the GBP

Changes in Monetary Policy

Many investors look at the pound for being a highly productive property and for carry trades. Changes in the MPC‘s interest charge change view towards the pound since it affects the submit of British securities. Moreover, changes in the bank repo ratio at the same time tells the BOE’s outlook on the economy.

When the BOE officials feel that the economy is hurting, they will either expand quantitative easing measures or cut interest rates, which will signal to the public that the economy is unstable. On the other hand when the BOE feels that the economys rise may lead to inflationary pressures down the road, they may cut back on quantitative easing or hike interest rates.

Developments in the Eurozone and US

Like all other currency pairs, GBP/USD is steady affected by growth in the Eurozone and U.S. U.S. economic data directly affect investors‘ and traders’ review in the market. Either Good or bad data from the U.S. can either send market participants running to the GBP on increased risk appetite or looking for safety in the USD on account of risk aversion.

The Spill Over Effect

The Eurozone results for a most of the U.K.s trade relations. Because of this, you should maintain your binoculars ready to see progress in the mainland (Remember, the U.K. is an island!). Any bad news or poor economic performance could potentially lead to bearish view towards the GBP.

Driven by Risk Sentiment

Although, the GBP benefits from the reality that it boats a higher profit amount in between other major currencies. When traders are in search of better yields, they will look to the U.K. because of the potential of getting a higher return on their investments.

When traders want to unroll their high-yielding investments and look for USD-dearest, they will start selling off the GBP.

Trading GBP/USD

In the currency market, the GBP/USD pair – also known as the cable – is the third most traded pair after EUR/USD and USD/JPY.

When trading the GBP-USD pair, timing is very important. There are two times when the volumes of the trade are optimum: This happens at the intersection of the European and Asian markets (3 am and 4 am EDT), and the intersection between the European and the American markets. Most orders are placed during this time.

GBP/USD is traded in amounts denominated in GBP. Standard lot sizes are 100,000 GBP and mini lot sizes are 10,000 GBP.

The pip value, which is denominated in U.S. dollars, is calculated by dividing 1 pip of GBP/USD (for GBP/USD, this is 0.0001) by GBPUSDs spot ratio. Profit and loss are denominated in U.S. dollars.

For one std. lot position size, each pip movement is worth 10 USD.

For one mini lot position size, each pip movement is worth 1 USD.

Margin calculations are based on U.S. dollars. For example, if the current pair of GBP/USD rate is 1.5000 and the leverage is 100:1, 1,500 USD is expected in available margin to be able to trade one std. lot of 100,000 GBP. Take care of, a higher GBP/USD sport ratio will expect more USD in available margin, while it need less USD for margin for a less rate.

GBP/USD Trade Tactics

GBP pairs tend to react more strongly to economic reports. There fore One way to trade GBP pairs is to take note of when key reports come out.

For example, if U.K. GDP figures were to come in much better than expected, it could lead to a massive rally in the GBP. While if you were to enter late, you could still grab a bunch of pips because GBP pairs really move a lot.

Note: GBP/USD and GBP/JPY pairs are the most volatile in the middle of the majors. In details, the pair of GBPUSD moves around 160 pips per day on average.

Because the GBP is so volatile, you may like to set wider stop loss orders to withstand all the strong moves in the market.