The recent developments across global markets have market participants wondering what is going on in the currency markets. Market participants should be worried about what the Central Bank of England is aiming to do with its current monetary policies. Most recently, the United Kingdom’s decision to leave the European Union (EU) should have currency traders and investors on edge. Consequently, you should keep an eye out on GBP currency pairs, particularly, EUR/GBP, USD/GBP and AUD/GBP.

UK Leaving the EU Shook Markets

The United Kingdom’s decision to leave the EU, which was an unpredictable event, shocked the foreign exchange and financial markets. The Brexit event caused the GBP to fall against all major currencies and surprised many market participants. This event complicated economies further, specifically those with trade agreements with the UK and countries surrounding the UK.

After the Brexit event, the GBP fell from an exchange rate of 1.4893 to 1.3681, when measured against the U.S. dollar between June 23, 2016 and June 24, 2016, over an 8% drop in just one trading day. Moreover, the GBP fell from 1.3091 to 1.2391, when measured against the euro, a 5.37% drop. Additionally, the GBP fell from 1.9617 to 1.8309, when measured against the Australian dollar, a 6.67% drop.

Will the GBP Bounce?

Some analysts at leading global institutional banks believe that the British pound is oversold and could rise by 3% against the euro. Morgan Stanley stated, “Against this background, the oversold but still yielding GBP may bounce back. In the short term, GBP may well be the best performing G10 currency, especially offering recovery potential against the JPY.”

However, with the Bank of England implementing its new quantitative easing program and interest rate cut, the central bank’s aim is quite clear. The central Bank of England is comfortable with the GBP at its current levels and is not worried about strengthening the GBP.