Safe and steady investments aren’t right for everyone. Rather than gently building up your savings, you might be ready to take on something riskier. The British Pound has taken a hammering lately, so it could be ready to strike back against the UD Dollar.
The Recent History
The chart showing the GBP/USD trading pair shows a huge level of volatility in the last few years. At the time of writing, £1 is worth $1.30. The start of 2020 has been fairly steady around this level, but last year it fell to £1.20. If we go back to March 2018, the price was £1.40. In the summer of 2015, it was over £1.50. In 2007, GBP reached £2.10 before crashing.
These might not look like particularly huge margins. But remember that forex trading lets you use leverage to invest in currencies without buying them. This is why this market offers such tantalising possibilities as well as potential risks.
Right now, the Pound looks under-valued. Uncertainties over Brexit have hampered it for the last year or more, but things are looking a lot clearer now. However, there are still some issues over the on-going trade agreements to be ironed out.
To decide whether to invest in the GBP/USD pair we need to understand both economies. Let’s start with the UK’s outlook.
- Brexit uncertainty has eased but not cleared completely
- The British economy has been slowing down in the last year, with growth getting close to zero at the end of 2019
- Economic growth should speed up slightly in 2020, according to the Bank of England
- Cabinet changes in the government are expected to lead to bolder spending plans
- Major infrastructure projects, including the massive HS2 rail line, are being planned
If we turn to the US Dollar, we can also see some important points to take into account.
- The economy’s growth is something that is currently causing concern.
- The Dollar may fall in the second half of 2020, if the Fed cuts interest rates
- The trade war with China has started to ease, but is still an issue
- Goldman Sachs, Deutsche Bank and Bank of New York all predict a modest weakening of USD this year
- Optimism among consumers looks like leading to increased spending levels
- The USD may act as a safe haven if the Coronavirus causes economic issues during the rest of the year.
Forecasts for the year show the USD/GBP pair having a fairly steady 2020. The predictions are generally in the range of 1.29-1.34. This is a small degree of movement but opens up the possibility of making a profit on the trade.
Summary – A Bold Investment
With so many factors to take into account, there is no guarantee how this currency pair will reach in 2020. Add in the traditional volatility and leverage of forex trading and there is no doubt that it is a riskier than average investment.
However, for bold investors GBP/USD trading gives some reasons to be optimistic. The signs are that it could provide some handsome earnings if the market moves as predicted.