So far, this Q3 has been an exhilarating roller-coaster for the markets with popular CFDs reaching record-breaking lows and highs. With rising inflation and bearish market sentiment, traders are hesitant to make the next move.
The forex market has been under the spotlight with powerful currencies tumbling to levels not seen in decades. The British Pound witnessed one of its most turbulent couple of months with UK inflation reaching a 40-year high of 10.1% in August 2022 and the GBP falling to its lowest level ever against the U.S. dollar in September, reaching $1.0349.
As the British economy has been struggling to push through, the US dollar has been gaining power.
What’s causing the drop of the British pound?
This year, the pound is among the 20 worst-performing currencies, as it tumbled by more than 20% against the dollar. This was primarily a result of the new Conservative government’s announcement of a spending and tax plan, which promised steep tax cuts primarily to benefit the wealthiest individuals, along with expensive measures to help consumers and businesses combat the painful rise in energy prices. These emergency budget measures aimed at boosting the ailing British economy.
Why is the US dollar so strong?
Dollar investments have become increasingly attractive due to rising interest rates and a relatively bright economic outlook in the United States. Almost every asset class has seen poor returns in 2022, with the exception of the United States dollar. This makes the USD a safe haven for many forex traders worldwide. Moreover, the Dollar’s strength is even more significant when compared with the underperformance of stocks, bonds, real estate, and cryptocurrencies, even when inflation is rising, and recession is just around the corner.
What to look out for in the future
As a trader, you should know that the exchange rates at which the currencies are traded are constantly changing. This is because currencies are impacted by a variety of aspects such as:
·Speculation: The currency exchange rate is quite susceptible to currency speculation, with traders buying and selling based on the expectation of future events.
·Economy: Strong currencies are a hallmark of economic success since investors are eager to invest there. As a result, demand and the value of the local currency rise.
The bottom line is that being a trader entails having the ability to understand how global economic events can affect your trading positions. The volatility of the markets requires traders to be flexible and able to adapt to fluctuating market conditions. Your XPro Markets account is equipped with the tools and resources you need to stay ahead of the news and boost your trading strategies.
Risk Warning: Contracts for Difference (‘CFDs’) are complex financial products, with speculative character, the trading of which involves significant risks of loss of capital.
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