Currency Profile Of British Pound (Part I)

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.

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.

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. 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.

The leading exports markets for UK exporters are the United States, France, Germany, Ireland and the Netherlands. The leading import sources for UK are Germany, France, United States, Belgium and the Netherlands.

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

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.

Right now Brits are not in favor of a Euro entry. 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. The voter opinion can change overtime. However, the likelihood of EMU entry will decline if the voters do not support Euro entry.

Bank of England: The monetary policy of UK is under the control of The Bank of England (BOE). BOE is the UKs central bank. 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.

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!