Brexit that occurred on June 23, 2016, had a significant impact on forex trading movements. This incident affected the value of the British currency (GBP) which resulted in changes in the level of the British currency in the forex market itself. But before discussing it further, what exactly is Brexit? and what is its impact on forex trading?

Brexit is short for British Exit, a referendum issued by the British government to leave the European Union, a form of post-World War II economic cooperation involving 28 countries in the European region. Answering the question of what is Brexit also needs to include the reasons for the decision.

The decision for Britain to leave the European Union or Brexit occurred because the voting results showed that 52% of the British people wanted Britain to leave the EU. This number of votes is considered very strong in representing the people because the voting was carried out by 71.8% of the British population.

The day after the vote and it was decided that there would be a Brexit referendum, the British Prime Minister at that time, David Cameron, immediately resigned because he was one of those who rejected the referendum. Cameron was then replaced by Theresa May who previously served as the British Home Secretary at that time. Although May also agreed with Cameron regarding the referendum, she still respected the people's decision and participated in the referendum process.

Officially Out of the EU

After going through a process of almost four years, now the UK has officially left the European Union, precisely since January 31, 2020. During the four-year process, many things have happened. The country's unstable economy because the Pound Sterling (GBP) currency depreciated, making the GBP's position in the forex market itself unstable.

Not to mention Theresa May's decision to resign in mid-2019, which made the UK's status uncertain and continued to cause the GBP to continue to be under pressure until it finally fell.

May's position as Prime Minister was then replaced by Boris Johnson, whose views were in line with the Brexit referendum decision. So, it can be said that Johnson was the figure who succeeded in realizing the referendum.

The UK's official exit from the European Union in January did not immediately stabilize the UK economy. The UK still has a long way to go to stabilize its economic position. That is why there will be a transition period starting from February 2020 to December 31, 2020.

This transition period will discuss the country's economic risks, corporate earnings, market valuations, and new trading regulations. Given that the UK has been a member of the European Union since 1973, there will be many things that must be reorganized so that the UK can immediately find its economic position, especially in the global market.

This transition period will not only be undertaken by the UK, but also involves the European Union. The UK and the EU must make an agreement on future economic relations, how the legal regulations in the relationship are, how transaction security is, and sharing economic data. This negotiation process has started since February 25, 2020.

UK Investment Climate Post Brexit

Once you understand what Brexit is and a little bit about the process so far, as a trader you also need to know about the investment climate in the UK post-Brexit. The investment climate affects economic growth. A thriving economy can strengthen the value of a currency in the forex market.

If it turns out that the UK's investment climate is shaken, then the value of their currency will also be shaken. In fact, Boris Johnson, the current UK PM, claims to be optimistic about the UK's economic conditions post-Brexit. Johnson believes that the UK can overcome their economic problems that have emerged since the referendum was passed in 2016.

But the reality says otherwise. Several economists have said that Brexit will have a negative effect on the UK economy and currency. These statements were later proven when the UK continued to experience investment outflows during the Brexit referendum period.

One of them occurred in 2017. At that time, the UK received foreign investment worth 300 billion pounds, but the outflow made by the country was only 40 billion pounds. This means that the investment process in the UK is not optimal in using the investment funds they get.

In 2020, data from the Research Development Corporation showed that the UK was experiencing a decline in its economic growth of 0.17%. If the negotiation process between the UK and the European Union is extended, the UK's economic growth is likely to decline even further in 2025 to 0.39%.

From the same data, this means that the UK will lose 1.6 billion pounds in 2020, then in 2025 the UK's losses could reach 3.75 billion pounds. In other words, the climate conditions in the UK during and after Brexit are slowly starting to lose their investment appeal.

The same thing is also supported by data released by Deutsche Bank AG. This data shows that the value of the Pound is still too expensive which will lead to a budget deficit and a looser monetary policy later. As a result, this condition will affect the value of the British Pound itself.

British Currency in Forex Market

The answer to the question of what is Brexit has brought you closer to seeing its impact on the country's currency. The British currency, the Poundsterling, has been under pressure since the first Brexit referendum came out in 2016. In fact, the downward trend in the GBP/USD currency pair had also started to decline before the Brexit referendum, but Brexit made conditions worse and made the decline in the value of this currency more significant.

Societe Generale SA, a leading investment bank and financial company in France, revealed other data similar to some of the previous data. They showed that the Poundsterling is predicted to not be able to reach its highest value like the era before the referendum. Currently, the value of the British currency has fallen by 11%. Not only Brexit, political conditions will also burden the value of the British currency during the transition process where negotiations are taking place. Boris Johnson promised to complete negotiations with the European Union before December 31, 2020.

If it fails and is prolonged, the currency's decline could continue. Meanwhile, if it succeeds on time, there will be an opportunity for the Pound to strengthen in the second half of 2020 against the US Dollar (USD), considering that the United States will also hold a Presidential election in November. The decline in the value of the Pound can be a profitable and detrimental moment if a trader is not careful in considering the situation.

Profitable because this is an opportunity for traders to Sell during a downtrend (the currency price is falling). However, this is also risky if the Pound fails to recover so that you don't have the opportunity to Buy during an uptrend (the currency price is increasing). Especially for those of you traders who often trade in the GBP/USD currency pair. It's a good idea to hold your strategy for a while and do a thorough forex analysis because the Pound's fairly strong position can also affect the currencies of countries involved in investing with the UK.

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