On Wednesday, March 29th, the United Kingdom’s government delivered a letter to the European Commission, triggering Article 50. Article 50 gives any country that is a member of the European Union the right to quit the EU unilaterally, and provides the directions for the procedure allowing them to do so.
Following the triggering of Article 50, many economists and investors braced themselves for a significant drop in the pound. In fact, it was the euro that suffered initially following the triggering of Article 50, with the pound raising to 1.153 against the euro.
Pound Continues a Volatile Stretch
During the almost two weeks since Article 50 was triggered, rather than seeing a significant drop in the pound, the pound has succumbed to volatility, with each day seeming to be a different story for the currency.
Most recently, the release of UK economic data from Q1 suggests a sluggish start to the year. Of particular concern to investors is the lower than anticipated output of the manufacturing industry. Many believed that the lower value of the pound would in turn cause a spike in production, due to higher demand for lower priced goods. This has not been the case, and has made investors shy about the pound. Additionally, the still strong performance of the US dollar continues to affect the pound. Though the two currencies are closely tied and can benefit from one another, an unusually strong performance of the US dollar can slow the pound’s gains.
All hope is not lost for the pound, as the volatility of the currency is still better than the anticipated all-time lows following the triggering of Article 50.
Euro Continues to Near Parity
The euro, on the other hand, inches closer and closer to parity as the political climate in Europe and the future of the European Union continues to be one of uncertainty. After the triggering of Article 50, it was, in fact, the euro that suffered the greatest dip in the forex markets, rather than the much anticipated pound. This week, the euro has fallen to 1.05 against the US dollar, and also fell against the pound, though this was following a week of slight gains on the pound.
The euro’s value has been affected by the French election, and polls suggesting that National Front party leader, Marine Le Pen, referred to by some as the French Donald Trump, has a stronger following than anticipated. Further harming the currency was recent poll data showing far-Left candidate Jean-Luc Melenchon taking a slight lead in polls, previously believed to be highly unlikely. Melenchon, like Le Pen, supports a country-wide Referendum to decide the fate of France’s membership in the European Union. France exiting the EU would no doubt have a large impact on the EU currency, the euro, much like Brexit has affected the currency’s value as of late. It may only be a matter of time before we see true parity between the US dollar and the euro.
Though nowhere near the highs of the end of 2016 and the beginning of 2017, the greenback continues to perform strongly in the forex markets. The dollar was partly boosted by optimistic data on the US economy showing that unemployment has decreased. It started the week on a three week high, though, as we always say at FXcompared, the only sure thing about the Forex market is that there’s no sure thing.
Australian and Canadian Dollars
We haven’t forgotten about our friends in Canada and Australia. This week, the Australian dollar has fallen to a three month low. The Australian dollar is a commodity driven currency, and a low demand for iron ore has slowed AUD’s growth. Further impacting AUD is the US dollar’s strong performance as of late, and unrest in the Middle East.
After several weeks of sluggish growth, the Canadian dollar rose against the US dollar as oil prices rose and the government reported a rise in housing starts. Like AUD, CAD is a commodity driven currency that tends to follow the price of oil.