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Forex: Will the Pound Sterling have a emerging currency future?


The future of the British pound in the Forex market is the unknown that closes this second week of July.

After the dollar lost prominence this week in the currency market, and investors allowed other currencies to take the lead, analysts are wondering which are the next currencies to come back.

The pound and its complicated environment

Brexit has been a stumbling block for the performance of the most highly priced currency in the Forex market. Since the United Kingdom decided to leave the European Union, the pound has not performed well compared to the past.

Because investors faced with the uncertainty of Brexit focused on currencies that provided more security in times of doubt. For this reason, the British currency had periods of considerable losses.

In addition, the coronavirus crisis hit the British economy equally.

The United Kingdom, forced to shut down the economy to curb the COVID-19 infection, suffered equally from the recession hitting world economies.

And after the previous instability caused by Brexit, the British country has had multiple potholes on its way to recover the economy.

However, July has been a good month for European currencies and for the pound itself.

Since Europe began with the opening of its economies to recover the rhythm of the economies of the Eurozone, after the height of the pandemic, the figures of European currencies rose significantly in the Forex market.

In the case of the pound sterling, the outlook has improved somewhat. Well, since the discussions on economic and free transit agreements between the European Union and the United Kingdom, this Friday July 10 at ECOFIN, the figures have improved.

Although, some experts say this is a false improvement for the British currency.

Is the pound sterling an emerging currency?

The British Pound continues to rise and although it has experienced a slight bearish rebound before the close it continues to gain ground, among the currencies that traced this week.

The pound sterling places its exchange rate against the Japanese Yen at 134.92. In addition, after registering a slight drop at the beginning of the week, the British Currency managed to close green against the Swiss Franc, up to CHF 1.1877.

Exchange rate of the British Pound against the Japanese Yen at the close of the Forex market. The future of the British Pound remains unknown.
Exchange rate of the British Pound against the Japanese Yen at the close of the Forex market. The future of the British Pound remains unknown. Source: Trading View

However, the future of the British pound does not look good for Bank Of America analysts, since for them its behavior has been that of a currency of an emerging country.

Let us remember that emerging economies are those belonging to developing countries. The currencies emanating from these economies depend on foreign investors, rather than local ones, and the behavior of these currencies is volatile.

Bank of America recently noted that the British pound sterling has behaved more like an emerging market currency. The pound has declined more than 15% in value since the 2016 Brexit referendum.

“We believe it is in the process of evolving into a currency that resembles the underlying reality of the British economy: small and shrinking.”

Kamal Sharma and Myria Kyriacou, strategists at the Bank of America

The future of the British currency

Despite the fact that the United Kingdom is not yet in the state of emerging markets. Well, the British pound is still highly traded, Bank of America analysts continue to consider that the future of the Pound will be equal to the currencies of an emerging country.

“We do not believe there is any risk that the UK will suddenly be seen as an emerging market,” said Thomas Pugh, a British economist at research firm Capital Economics.

The United Kingdom remains the sixth largest economy in the world. And the pound represents 4.4% of world currency reserves, according to the International Monetary Fund, suggesting that investors still maintain their confidence in the currency.

However, the opinion of Bank of America analysts seems to be well founded. For Britain’s role in Europe and the world is clearly diminishing.

The UK remains locked in a deep recession and COVID-19 deaths, now over 44,000, continue to rise. In addition, tens of thousands of job cuts have been enacted in the British country.

Government stimulus programs, including wage subsidies, have been criticized as insufficient to stem the tide of these large job losses.

The Bank of England predicted that the British economy could contract by 14% this year, the worst performance in more than three centuries. And many analysts at Bank of America believe the pound still has a lot to recover to return to its past glory.

What do you think the future of the British Pound will be like? Let us know in the comment box.

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