Pound hit a low point, but not for long!


At the end of last week, the Euro did something that it rarely does: take a nosedive against the British pound.

Although there has been much more volatility in the currency markets over the past year, it is still relatively stable compared to the ups and downs experienced by other asset classes such as oil and certain company stocks due to the imposed shortages of raw materials and supply chain issues that have taken place recently.

Currency, as always, has been relatively stable.

Therefore, a 1 point drop between two major currencies is enough to make for an interesting chart pattern, and on Friday, February 11, the Pound's gain against the Euro tailed off once again.

The low point can really only be considered a 'tailing off' of a ten-day gain which the Pound had been achieving, after its considerable drop to 1.18 on February 4, however today's trading week begins with the Pound slightly down compared to its recovery performance from the low point on February 4 which was its lowest point in one month by far.

After February 4's substantial dip in value for the Pound against the Euro, it began to rise healthily once again, and peaked at almost 1.20 on Thursday last week, however the upward trajectory came to a standstill and the Pound began to decline again.

All eyes this morning will be on whether British Prime Minister Boris Johnson begins to wax lyrical about his plans to 'challenge' Russia's president Vladimir Putin over any possible conflict in Ukraine.

As is almost always the case, when a Western nation begins involving itself in an overseas geopolitical matter, confidence in the economy either strengthens or weakens, depending on how such a geopolitical issue benefits or exposes the nation seeking to get involved.

On British soil, confidence in the leadership abilities of Boris Johnson is at an all-time low since his election, and despite Russia's comparatively low-grade economy which is based solely on mineral and fossil fuel mining and export, there is an abundance of investors who know that Mr. Putin makes very few mistakes with his strategies.

Therefore, it may be that the Pound could become volatile if Boris Johnson's commentary continues to be highlighted in the press, as many investors consider that his interfering with Russia's policies on its own soil amount to playing with fire.

No conflict has begun as yet, and therefore speculation hangs over the markets, giving the Pound and the Euro, and to some extent the US Dollar as Joe Biden wades into the debate, some potential for volatile reactions to news on which angle each premier will take.

There are those who consider Russia to be a 'junk' economy, riddled with high inflation, government-instigated price realignments, capital controls and high levels of corruption, further exacerbated by sanctions imposed on it by Europe and the United Kingdom, but this particular market-moving scenario is not about the Ruble at all, it's about the Pound, and potentially the Euro and Dollar later on, however given Germany's good relationship with the Russian government, and Boris Johnson's less than credible outbursts, the majors are the ones to watch.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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