Currency Profile Of British Pound (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.

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. London is still the forex center of the world. London Stock Exchange is still the second most important stock exchange in the world after the New York Stock Exchange.

Although majority of UK GDP is from services, UK is the largest producer and exporter of natural gas to EU. The energy production industry accounts for 10% of GDP which is one of the highest shares of any industrialized nation.

Trade deficit is an important economic indicator for determining the strength or weakness of a currency. Overall, UK is a net importer of goods with a consistent trade deficit. Increases in energy prices such as oil will significantly benefit the large number of UK oil exporters. This is important for forex traders as energy prices are positively correlated with GBP.

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.

The possibility of Euro adoption will still be in the backs of minds of pound traders for many years to come. UK had rejected adopting Euro as its currency in June 2003. Now, if UK decides to join EMU, it will have significant ramifications for its economy.

The most important of which is the adjustment of UK interest rate with the Eurozone interest rate. 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.

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

Bank of England: The monetary policy of UK is under the control of The Bank of England (BOE). BOE is the UKs central bank. BOE is one of the oldest central banks in the world. The Monetary Policy Committee is the nine member committee that sets the monetary policy for UK. The committee was granted operational independence in 1997. It consists of a governor, two deputy governor, two executive directors of the central bank and four outside experts. - 23199

About the Author:

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