After US Dollars, Euro is the second most traded currency in the foreign exchange market, accounting for 33.4% of the total volume. British Pound or GBP is placed fourth after Japanese Yen and stands at 11.8%. EUR/USD is the most popular currency pair while GBP/USD is placed third on that list. Both EUR and GBP represent two stable economies in the world and naturally attract many investors. But recent events have shaken both these currencies and questions have arisen regarding their reliability to make money on forex.
You may ask why to consider both the currencies together instead of analysing one at a time. The fact is that Great Britain was a part of Euro-zone till recently, although having a separate currency, and any effect on UK’s economy was bound to reflect on Euro. Read on to find out how these two currencies may lose popularity and traders may shift towards Swiss France and Japanese Yen to make money from forex.
- The European Debt crisis and its effect on Euro.
Greece was asked to join the European Union (EU) in 2001, and it caused more problems to the Union than solving any. After joining, it raised its public sector wages unchecked and could not control its budget. Ultimately, it went into debt and discussions were raised to push Greece out.
This depreciated Euro and trader’s chances to make money from forex became dicey. If Greece was supposed to leave EU, the country would have never recovered from its financial crisis soon, and Euro’s devaluation would have continued. This was prevented, and Euro was saved to some extent.
Also, retention of Greece created huge pressure on Germany and France. It is often said that Germany’s currency as Euro is highly underrated and it may soon want to opt out along with France. This will make Euro fall to alarming levels. Making money on forex market with EUR may become a bit difficult.
- Britain’s decision to leave Euro.
Recently, UK put an end to all speculations and opted out of EU. David Cameron resigned, and a new leader was elected. All these immediately saw GBP fall to its lowest levels. It had its effect on Euro as well. Brexit means that Britain will no longer contribute to EU’s annual budget and this will add additional pressure on Germany. All the effects will be cumulative and will hamper your chances of making money on the forex market.
Brexit means UK loses its right to carry out free trade with the rest of Europe. This will decrease demands of both EUR and GBP and will ultimately lead to their devaluation. Also, decreased exports by UK will mean downfall of its GDP along with fall in the Irish economy, which is heavily dependent on UK. It will be wise to consider these factors before thinking of making money on forex market with GBP.
Almost every world event affects all the existing currency in forex market. Answer to your question, “Can I make money on forex?” is not that simple. The once popular pair is now seeing depreciation suddenly, and traders are shifting their focus to other pairs.
Then again, it is said that there is no crisis in forex trading and with proper intuition; you can take advantage of a global economic breakdowns as well. Certainly, both EUR and GBP are facing few roadblocks, but you can certainly use this situation to make money on forex.