Since the news of Britain’s impending departure from the European Union was announced, the British Pound has been dipping. The currency recently dropped below a level that could take it out of the market for now, but it has not yet broken out of the downtrend it has been in for the past month.
It appears that an hour after the release of data from South Korea which showed the post Super Tuesday rally ending, the decision was made to halt the rally. Because of this, the Japanese Yen has risen on the news and has reached levels that suggest a new range for both currencies.
This is a good thing for the traders and investors. If the trade moves out of the range indicated by the Japanese Government, it can begin to climb again. Traders who want to avoid a currency from moving out of a range will wait until after the exchange rate rises above the level of support it had previously established.
The reason why the British Pound fell so far during the post Super Tuesday rally was due to the fact that the US Dollar strengthened as soon as the announcement of Britain’s exit from the EU was released. Even though the dollar remained strong, the British Pound still dropped. Since then, the US Dollar has started to weaken, however traders are moving quickly to hold the dollar within the trading range indicated by the USD/JPY.
The Euro has started to decline because it has to a large extent benefited from the recovery of the European economy. Although the European economy has begun to show signs of recovery, the governments in Europe have chosen to pull back from their stimulus programs, and this means that the currencies of the countries that have undertaken these programs will be moving down.
In addition, the move to hold the Euro within a currency range indicated by the USD/JPY has been supported by the fact that the euro has risen significantly. European bonds are selling off, and countries such as France are selling assets, trying to rid themselves of their debt. Since a currency is always going to be rising relative to another, the relative strength of the two currencies is going to determine how much each is going to move in response to the other.
The recent moves up of the Euro are being supported by news that the Euro is likely to fall against the US Dollar. However, even if this did happen, the strength of the Euro versus the dollar is expected to cause it to strengthen. Due to this, the dollar is not expected to move too far away from the level it had set for itself.
Another way to look at it is to note that the Dollar is expected to continue to strengthen. After all, in times of economic trouble, investors tend to flock to assets that can provide them with returns that are higher than the value of their money. If the dollar stays strong, then this is going to be even more true.
In addition, the move in currencies tends to be taken as a signal that investors will start to think about trading again. During times of crisis, investors often think about making decisions based on technical indicators rather than buying or selling solely based on the changes in the currency market. Therefore, it appears that it is the technical analysis which is being taken into account by traders during times of crisis.
If you look at it that way, it makes sense that it is the strength of the USD that is holding the British Pound in place. Another interesting point is that there is no evidence that people will start rushing to use the Dollar as a reserve currency. This means that the strength of the Euro may not be the determining factor for investors who do not have their dollars tied up in the Euro.
In the end, the amount of volatility that the Dollar has experienced will be determined by the type of event that occurs during the financial turmoil. If a recession takes place, then the dollar will be strong, if there is a crash in the stock market, then the USD will be weak. It is very difficult to predict exactly where the markets will go next, but for now the strong dollar is holding the British Pound in place.