Brexit, the American Presidential Election, the French Election - the last year has brought about major shifts in foreign policy and fiscal policy. Markets remain uncertain as to what those shifts mean for the economy, and we are continuing to observe this uncertainty in action .
Perhaps most dramatically, we are observing this uncertainty in the foreign exchange markets. Beginning with the surprise of Brexit and a large dip in the value of the pound against the euro and the US dollar - since June of 2016, the foreign exchange markets have behaved in a peculiar and mostly unpredictable fashion. Trump’s election, which came as a shock to many across the globe, was forecast to harm the US dollar by many investors. As we know now, the dollar rallied following the surprise poll results, and has continued to perform with relative strength since the election of Donald J. Trump.
The US Dollar Since the Election of Trump
Since November the US dollar has raised or mostly retained its value, though the currency has still experienced some mild volatility. This performance has primarily been driven by investors enthusiastic belief that Donald Trump will be good for businesses. The strong dollar has also been boosted by Janet Yellen’s announcement of increased interest rates, which suggest faith in a robust and continually strengthening economy.
Interestingly, though many were surprised by the dollar’s strength following the election of Trump, historically, the dollar gains strength, even if just briefly, following the election of a Republican candidate. In the case of Republican Donald Trump being elected, the market performance and US dollar gains should be a surprise to no one, the surprise itself was Trump winning - not the US dollar gaining. This was reflected in Forex markets following the election.
This week, Trump’s announced Tax plan lowered the value of the dollar, as investors grew nervous about the lack of detail in the plan, causing uncertainty. His announcement that he plans to renegotiate NAFTA, (the North American Free Trade Agreement, an agreement that allows a trade bloc between the United States, Canada and Mexico), also brought down both the Mexican peso and Canadian dollar. Again, these dips were due to the looming uncertainty of what is to follow.
Euro & Pound Sterling - Brexit and Elections Affect Values
The euro also continues to be influenced by the surrounding political climate. Last week’s election, which narrowed the pending presidency down to Marine Le Pen and Emmanuel Macron, resulted in a stronger euro. This came as a surprise to many, as Le Pen is in favor of a referendum vote for France’s European Union membership, which could place the euro in further jeopardy. However, Le Pen, the far right candidate, did not garner as much support as anticipated, which left many investors relieved, and hopeful that pro-European Union Macron will win the election. Still, as nothing is final in the election yet, many are wondering what will happen in the future, with some speculating whether they should buy their holiday euros now or later.
Today pound sterling hit a 2017 high against the US Dollar at 1.2918. The pound has still not fully recovered from gains made by the euro following the French election. The volatility of the pound will likely continue as the United Kingdom continues to negotiate their exit from the European Union. As we always say at FXcompared Magazine, the only thing we can be sure of in the Foreign Exchange markets is uncertainty.
