How Lockdown has affected Forex Trading in the UK

Overview

From 2020 and even in 2021, Covid-19 caused widespread harm to global financial markets, with hopes for a return to some normality pinned on phased approaches to vaccines and herd immunity.

Economies around the globe have suffered significant hits to Gross Domestic Product (GDP) growth during the pandemic, with lockdown measures implemented around the world, which altered supply and demand.

There were millions of people who were unable to go to work, schools and universities were shuts, and thousands of businesses shut their doors, some permanently while others struggle to get back to normal operation.

As a result of all these factors, the global economy has started recession in the face, with some of the leading economies, such as the United Kingdom, shouldering significant blows.

Global financial markets have experienced extreme volatility with investors grappling with the multitude of effects that the virus had and could still have.

While many forex traders used specific trading strategies to harness the volatility present in markets, others trading major currency pairs were forced to place their faith in safe-haven currencies such as JPY and CHF, amidst others while USD, EUR, and GBP experienced severe levels of fluctuations in their exchange rate.

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These rapid fluctuations made it exceedingly difficult for traders to conduct a technical analysis to try and speculate on price movements in currency markets, affecting the trading styles of many and forcing some traders to lower their trading volumes to mitigate their trading risk.

The effect of lockdown on the forex market in the UK and other global economies

During the past year and a half, there were significant slumps noticed in global stock markets such as the Dow Jones, which experienced a large price slump which was incomparable with any other slumps in the past.

This resulted in increased losses in capital holdings as both shareholders and forex traders watched international trade spiral down because of the Covid-19 pandemic, with foreign currencies and stocks fluctuating.

While many were banking on vaccines bringing economic recovery, the financial markets continued to be bombarded by increases in infection rates as different waves of Covid-19 washed over various economies.

Forex traders who traded in commodities such as crude oil recorded large losses as they were caught in the Russian/Arabian trade war, forcing a sharp drop in oil prices.

Forex trading in the UK also resulted in further losses because of the Covid-19 pandemic and margin trades, with more traders changing their trading styles to try and harness the volatility in the market by using more leverage in forex trading.

The forex market also saw some forex traders transition to indices markets and digital currencies to try and alleviate the losses they were experiencing in the forex market. Declines in stock markets resulted in declines in the value of the GBPUSD currency pair.

Due to lockdowns and more UK businesses struggling to recover, there was an increase in future risk on economic data including manufacturing, industrial production, GDP, a rise in the unemployment rate, and other factors which accounted for a weaker pound.

However, there is a lot of hope in the resurgence of the Chinese economy, which is the second-largest in the world, as the driving force behind manufacturing and industry trends that could save the world economy from a recession.

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