Trading GBP/HUF

Exotic pairs are arguably a double-edged sword, offering greater volatility but lower liquidity than major and minor pairs. The greater volatility of smaller markets provides more profit potential, thanks to larger and more sudden price movements, though this can also increase the risk of losses.

The lower liquidity of pairs such as GBP/HUF can also result in slippage, which is when orders fill at a different price from when it was requested.

UK Economy

The British economy is one of the biggest in the world, with the fifth largest nominal GDP sitting at an average of US$2.7 trillion. Its currency, the pound sterling (GBP), is the oldest in the world and is used in the UK and several overseas territories and islands. While the UK temporarily followed the gold standard in the 20th century, it has been a free-floating currency since 1971.

The GBP is the fourth most traded currency in the world, involved in 12.8% of daily FX trade volumes. This provides relatively good levels of liquidity, even for exotic pairs like the GBP/HUF.

The financial services field is the most prominent in the British economy, helping services contribute to 80% of the GDP.

The UK is also one of the biggest exporters and importers of goods and services in the world.

Britain’s top trading partners are the USA, Switzerland and Germany.

The Bank of England (BoE) is responsible for managing the pound sterling’s interest rates and monetary policies.

Hungarian Economy

The second economy directly linked to the GBP/HUF FX pair, the Hungarian economy is much smaller, producing a nominal GDP of US$155 billion.

Although Hungary is a member of the EU, it has not joined the eurozone and instead manages its own currency, the Hungarian forint (HUF).The forint was introduced in 1946, after the Second World War, and was pegged to the price of gold until 2008, when it became free-floating.

Hungary’s GDP is mainly divided between 56.64% in services, followed by 24.52% in industry, and then 3.38% in agriculture.The economy places a large emphasis on foreign trade, with a high trade surplus of more than US$6.5 billion every year.Its top yearly averages in exports are refined petroleum at US$1.5 billion, petroleum gas at US$798 million, and corn at US$798 million.

Similar to the Bank of England with the GBP, HUF policies are implemented and managed by the Hungarian National Bank (HNB).Although the inflation target was 3% in the past, in recent months this has reached 11.7%.

By comparison, the BoE in the UK is expecting inflation to rise to 11% in 2022.From this perspective, the two economies are facing similar challenges.

GBP/HUF Exchange Rate History

Looking at graphs over the last 14 years, the trend for GBP/HUF has been positive since the Hungarian forint became free-floating in 2008.However, charts and diagrams also indicate a slowly weakening forint compared to the pound sterling.

On the GBP/HUF 10-year chart (2012-2022), the all-time high was set at 490 on the 12^th of July 2022 and the all-time low at 249.58 on the 2^nd of May 2016.

Factors Affecting GBP/HUF

Forex pairs are complicated instruments, with many different factors capable of causing changes in exchange rates and forecasts.Some of the most important tools for making comparisons are:

• Economic growth – The health and performance of an economy is directly linked to the performance of its currency.GDP graphs are a simple, widely used indicator of economic health that can be tracked to judge changes in GBP/HUF exchange rates.If the UK’s economy continues to grow, for example, then the price of the pair will likely continue to rise.
• Inflation – All economies are subject to inflation, and when a currency inflates, its strength relative to other currencies must decrease to reflect a balance in prices for goods and services.Look out for Consumer Price Index (CPI) reports from each country and compare each level to gauge whether one economy has strengthened or weakened next to the other.

• In 2022, inflation rates are estimated to increase to 11% for the UK and to 11.8% for Hungary.
• Monetary policy – Large differences in monetary policy between two currencies provides room for speculation on exchange rates, which can raise volatility.This could give an already volatile exotic pair like GBP/HUF even more profit potential, as well as a greater risk of losses.
• Other economic releases – There are many economic reports released each year by governments, such as consumer confidence, balance of payments and industrial production figures.Many experts attempt to predict the outcome of such reports, and the level to which these are correct or wrong often results in market changes.

GBP/HUF Trading Tips

When To Trade

Ensuring you trade at the right time is particularly important with exotic FX pairs like GBP/HUF.Its rate may seem favorable at a certain point but investing when liquidity levels are low and spreads are high can greatly mitigate profits, and sometimes even remove them.

The best time to invest in GBP/HUF is arguably during the overlap between the London Stock Exchange session and the Budapest Stock Exchange session, which occurs between 08:00 GMT and 16:00 GMT.This is when trading volume is highest, spreads are lowest and slippage is least likely to occur.

Where To Trade

Given the low trading volumes of exotic currency pairs, some brokers either do not offer them at all or offer poor spreads.

If you intend to trade GBP/HUF, check that your forex broker offers the pair, and with a competitive spread, preferably before opening an account.

Final Word On Trading GBP/HUF

Trading the GBP/HUF is an interesting opportunity that can provide investors with greater volatility and profit potential than the standard major and minor pairs. This can also increase the risks of loss, so be sure to refine your trading strategy, assess current events and analyze economic releases before investing. Real-time charts and exchange rate history are also key tools when making GBP/HUF predictions.

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