Trading requires a thorough knowledge of the global markets along with an insight to the advantages, risks and the currencies which can be traded. An investor needs to have an understanding of the different terminology and knowledge of the interpretation of Forex calculations and quotes. An investor also requires an in-depth knowledge of Fundamental analysis which is a study political, financial and economic factors that are able to quantify and represent the specific economy and is able to influence the said economy.
What is Brexit
The British exit from the EU voted by the people of Britain is termed as ‘Brexit’. With the exit of Britain from the European Union it will lose its access to the European markets with the chances of the country tumbling into a recession. The day after the ‘Brexit’ there was a plunge in the markets worldwide hinting at severe economic risks.
Brexit making a difference to the pound
As mentioned, Brexit has caused a lot of uncertainty in the investment and financial markets, and as we know that Forex markets are short term focused, there are a number of investors looking for a sell-off. Traders in Forex are likely to shift to the currencies which are considered as stable instead of the pound. Another reason for traders to dump the pound is the outstanding debt of the United Kingdom which might be a struggle for the government in the near future. The British currency has already crashed to a seven year low after the decision of Boris Johnson to join the campaign.
Global Impact of Brexit
There is no fixed pattern to follow after Britain has decided to leave EU in the coming years or months. There are, however, some immediate consequences which are likely.
- Looking for safety, investors will shift their investments to markets which are considered as a ‘safe haven’, like the United States, more so in treasuries, and also Japan. This can further lower the interest rates of the market and raise the values of the currency.
- A higher Japanese yen and the US Dollar work in the negative to export sectors in both the economies. This is more so in Japan which is struggling to reinvigorate and reinflate the economy after a long deflation period.
- The US dollar on the higher side pressurizes China to bring down the yuan lower, as it seems to be caught between two of the largest export markets, the U.S. and the EU.
- Talking about the U.S., the pressure on goods which are tradable will widen the so called divergence between the strong deflations in the goods sector vs. the inflation in the service sector.
Brexit impact on the Indian Market
With Brexit, the UK and the US stock markets take a hit which has a snowball effect on India. This is due to the fact that foreign investors will try to sell-off in the emerging markets, which also includes India. This might not affect India directly except for those investors which have an exposure in the UK. All the same, regulators of the capital markets in India and the central bank are alert to avoid any volatility. You also have the RBI keeping a vigil on the developments and ensure that the essential steps will be taken to ensure stability in the stock markets. This also includes liquidity support. There could be a possibility of the Indian Rupee depreciating and come down to Rs.68 per US Dollar. Talking about trade, there is a possibility of Britain might forge new trade pacts with India after its departure from the EU. The UK, post Brexit, will have more latitude to negotiate on trade plan with India as it will be free from the rules that accompany EU membership.
The Indian Companies after Brexit
There is a possibility of the Indian companies in the UK reworking on their strategies for the domestic market of UK and also UK as the base for manufacturing. Companies which have their operations in the UK could be hit by losses.
Tricks of the Trade
With Brexit and the impact it has globally in the financial and trade markets, it is essential to have a thorough insight into the world markets and how the financial world breathe.