Currency Profile Of GBP (Part I)

By Ahmad Hassam

British Pound is also known as the Cable. The name most probably struck in the late nineteenth century and the early twentieth century. United Kingdom (UK) is the fourth largest economy in the world. UK has a service oriented economy with manufacturing representing a small part of GDP. Manufacturing is only equivalent to one fifth of GDP.

London is still the forex center of the world. New York comes after London in the daily market turnover in forex. The main reasons that London has a higher percentage of trade is that it has always been a financial center and also because of time zones. The London market starts between 7am and 8am, which is the end of the trading day for Asia. Just as the Banks in London are beginning to open at 8am they can deal with other traders in Tokyo, Hong Kong or Singapore whose trading day is just coming to a close. During the later part of the trading day in London, the US market opens up and so catches a healthy portion of that market as well. London Stock Exchange is still the second most important stock exchange in the world after the New York Stock Exchange. The British capital market systems are one of the most developed in the world and as a result finance and banking has become a strong contributor to the GDP.

UK has large reserves of oil and gas in its North Sea. Offshore drilling has made the energy production industry account for 10% of GDP which is one of the highest shares of any industrialized nation. UK is the largest producer and exporter of natural gas to EU although majority of UK GDP is from services.

This is important for forex traders as increases in energy prices such as oil will significantly benefit the large number of UK oil exporters. Overall, UK is a net importer of goods with a consistent trade deficit.

The United States on an individual basis still remains UKs largest trading partner. However, the largest trading partner of UK is the EU with the trade between the two accounting for almost 50% of UK imports and exports activities.

Trade surplus or the trade deficit is determined by the difference between the exports and the imports of a particular country. The leading import sources for UK are France, United States, Germany, Belgium and the Netherlands. The leading exports markets for UK exporters are the France, Germany, Ireland, United States and the Netherlands.

UK had refused to accept Euro when it was introduced keeping the option open to adopt it in the distant future. UK had rejected adopting Euro as its currency in June 2003.The possibility of Euro adoption will still be in the backs of minds of GBP traders for many years to come. Now, it will have significant ramifications for its economy if UK decides to join European Monetary Union (EMU).

One of the primary arguments used against adopting the Euro is that UK has sound macroeconomic policies that have worked very well for the country. The most important of these ramifications is the adjustment of UK interest rate with the Eurozone interest rate in case UK decides to join EMU.

There are many arguments in favor of Euro entry and many against.UK is a highly political country with government officials highly concerned about the voter approval ratings. Right now Brits are not in favor of a Euro entry. The voter opinion can change overtime. However, if the voters do not support Euro entry, the likelihood of EMU entry will decline.

Bank of England: The Bank of England (BOE) is the UKs central bank. The Monetary Policy Committee is the nine member committee that sets the monetary policy for UK. It consists of a governor, two deputy governor, two executive directors of the central bank and four outside experts. The committee was granted operational independence in 1997. - 23211

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try These 1500 Pips A Day Forex Signals From Heaven. Know Forex Rebellion!