Brexit Problems
When the British public voted in favour of leaving the European Union back in June 2016, it caused shockwaves throughout the UK and the rest of Europe.
David Cameron obviously didn’t expect that more than 50% of the British public would vote to leave Europe, and I don’t think many other people did either, but it has happened and has actually resulted in one big mess.
Teresa May’s Conservative government is clinging on to power, with many arguments and disagreements continuing to rumble on within her own party, and now there is a fresh crisis after David Davis, the Brexit secretary who was essentially responsible for delivering Brexit, resigned in protest at her soft Brexit plans.
How Has Brexit Affected the GBP/USD Pair?
When the result of the referendum was announced just over two years ago, the impact that it had on the British pound was clear to see because it basically plummeted against all of the major currencies almost immediately.
Prior to the referendum, the GBP/USD, for example, was trading between 1.4 and 1.5, but following the vote it dropped to 1.3 within days, and continued to fall in the following months, dropping to around the 1.2 level at one point.
Since then, this pair has bounced back quite a lot, and was actually trading between 1.4 and 1.43 earlier this year, but because there is still so much uncertainty surrounding Brexit, it is now trading back in the 1.30s once again.
The Major Problem
The major problem is that nobody really knows what is going to happen. No-one really knows if we will get a soft Brexit or a hard Brexit, both of which will affect the movement of the GBP/USD pair in different ways.
Indeed there is still a small chance that Brexit won’t actually happen at all because of the ongoing disagreements within the Conservative party.
Furthermore, if there is a snap election and Jeremy Corbyn’s Labour party gets voted in, we could well see a second referendum, and potentially an entirely different result, in which case the GBP/USD would almost certainly rocket higher as a result.
Future Direction of the GBP/USD Pair
As a result of all this uncertainty, the GBP/USD continues to trade in a sideways trading range with no clear direction, and this is likely to continue for the near future until we get a clearer idea of the Brexit exit deal.
So whilst there will always be opportunities to make money from short-term trading, it might be a good idea to remain on the sidelines for the foreseeable future if you are considering taking a long-term position on the GBP/USD pair.
There is always a chance that the price will surge higher or lower whenever there is a major development in the ongoing Brexit saga.
Plus with the government being plunged into crisis after crisis, there is the potential for some big price swings in the coming weeks and months, which could easily result in some big losses if you are caught on the wrong side.