Research from Morgan Stanley shows that the British pound is not as strong against large trades as the euro or yen. Despite being the world’s fourth most-traded currency, its price movements are similar to smaller currencies like the Swiss franc and New Zealand dollar. A $1 billion trade can significantly affect the pound’s value, unlike Japanese or European currencies. This indicates that global capital flows have a larger influence on exchange rates than trade does. Analysts from Morgan Stanley found that the pound has lower liquidity, meaning price changes depend on when and where trades occur.

Primary Drivers Of The Pound

According to their research, which used simulated client orders during busy hours, capital flows mainly drive the pound’s value. This information was shared by Bloomberg. The pound appears less capable of managing large trades, making it susceptible to sudden price changes. We may see more significant price shifts compared to other major currencies, like the euro. This suggests that in the coming weeks, it might be wise to consider strategies that take advantage of volatility. As the Bank of England prepares to announce its next interest rate decision in early October, uncertainty is growing. UK inflation data from August 2025 showed a stubborn 3.1%, making it hard to predict the bank’s next steps and attracting speculative capital. This situation can lead to a strong reaction from the pound due to its low liquidity.

Lessons From The Past

Looking back at the market chaos in September 2022, we can see how quickly things can change. The announcement of the “mini-budget” caused a dramatic drop in the pound’s value, revealing how sensitive it is to sudden shifts in investor confidence. This historical instance illustrates the risks and opportunities we face today. Therefore, we are considering buying options contracts to prepare for significant price movements while avoiding unlimited risk. Currently, one-month implied volatility for GBP/USD is around 9.5%. This could be a good deal if unexpected policy changes trigger a major shift. We will also focus on making trades near the London close, as this time seems to result in more significant price impacts. Create your live VT Markets account and start trading now.

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