Another snub to pollsters everywhere has seen the anti-establishment candidate in the world’s largest economy come to power, and the ability for the Government to storm ahead with a Brexit absent consultation has come into question.
If you wanted proof that there are no guarantees in the currency markets the first few weeks of this month have given us plenty of food for thought. With so much of the current market governed by politics rather than more predictable economic trends, further surprise twists and turns are certainly not out of the question.
The article below covers the currencies which our clients most commonly exchange, if you wish to discuss other currency pairings, please feel free to get in contact with me directly at email@example.com.
The Pound has finally had some life breathed into it after months of tentative drops, with foreign currency buyers biting their nails and anyone with a Sterling interest moving on without a care. However, since the beginning of the month we have seen a sudden and heavy turnaround in the Pound’s value.
The improvement during the week of Trump’s ascendancy to President-elect was the largest single positive movement on Sterling’s value since the day before the EU Referendum. In that period markets were pricing in the results of the polls which were predicting a Remain victory, and the recent news coming out of the UK has buoyed financial market confidence towards the UK’s economic future in a similar fashion.
We make sure at this company that our own opinions of the merits and consequences of a Brexit vote for the future of the UK economy don’t filter into our analysis, but it’s undeniable that financial markets wished for the UK to Remain, and have shown on many occasions that a delay in enacting Article 50, and any hints to the greater likelihood that we will retain access to the single market, have boosted the Pound.
The news of a Trump victory, particularly when he adopted a much more measured, unifying and conciliatory tone upon the acceptance of the country’s vote for his candidacy, has played well with the Pound’s attractiveness in the marketplace. Trump is seen as a key ally in assisting the UK to secure a promising deal in our upcoming negotiations with the EU, particularly given that the current agreement on the table between the US and the EU is coming into question at the moment.
Furthermore, the recent high court ruling that Parliament will have to be a part of the discussion on leaving the EU, both on the terms of an exit and on the date of triggering Article 50, has boosted the Pound with the expectation that cumbersome Parliamentary procedures will delay the formal proceedings to leave the EU. Furthermore, there is even a greater chance of stipulations on the Government’s negotiations with the EU that the UK will retain access to the single market.
At the beginning of December the Government are set to lodge their appeal on this, and Trump’s status as an ally for the UK in upcoming negotiations certainly can’t be counted on given his recent flip-flopping on pre-election promises. This continues to be an ever-evolving political situation, and as such a premium is put on being in a position to move quite quickly in case any tempting opportunities occur, but also to be able to protect yourself from sudden adverse movements. I strongly recommend that if you are buying or selling Sterling for you to contact your account manager or myself directly on firstname.lastname@example.org to discuss the options open to you which are not available through the retail banking sector on any planned transfers.
In the currency markets, news from across the Channel has rarely had such little impact on the Euro’s value, most of the effect on GBP/EUR and USD/EUR exchange rates is derived from events in the US and the UK.
However, now that there is a hiatus of sorts - with Trump not in power until January, and the Government’s Supreme Court appeal not producing a verdict until mid-December – markets may not be as single minded in judging Euro exchange rates.
For example, today data on the Eurozone will be released concerning how well they are currently dealing with their inflation issues. As with the UK and the Pound, inflation is a major discussion point for the value of any currency as this informs directly as to the health of that particular economy (specifically spending activity) and is suggestive of future monetary policy (i.e. interest rate hikes or cuts, and whether emergency monetary stimulus is needed).
Specifically for this data set there is expected to be a fall, which could spell further concerns over the Euro that their current program of QE could be extended beyond their current 2017 March deadline. A cheaper Euro could compliment the recent gains made by Euro buyers. However, it is important to remember that the Eurozone has been performing well in other key areas such as foreign investment, exports and growth.
To ensure you are not caught by surprise by any of these releases, I strongly recommend that anyone with a Euro interest over a specific time period should contact their account manager to discuss which of these data sets will be released in a timeline which could affect your future requirements in order to remain a well-informed purchaser during this tumultuous period on the currency markets.
The ‘Trump factor’, or the ‘Trump phenomenon’ – bizarrely both phrases touted by the man himself – has sent rippling affects throughout the currency markets that are still continuing.
Buying USD rates have seen a rollercoaster since polling day. When the results began to flood in showing the likelihood of a Trump victory, the Dollar began to fall. The idea of a Trump Presidency to financial markets saw the same concerning changes to the status quo that they enjoy operating under most.
Similar to the Brexit vote on the Pound, the GBP/USD exchange rate rose by 2% in the space of 30 minutes with the US Dollar being undercut. However, Trump surprised us all once more, with a reflection of his ability to morph himself, he suddenly presented not a divisive character, but one of unification, calmness, and frankly was even Presidential in tone.
Since then the rhetoric on Trump has changed, whilst it has still weakened the Dollar it has steadily been gaining in the near term, reversing some of the gains acquired by Sterling as Trump continues to form his government ready to get into action in January. Whilst markets are not necessarily fanatic about his appointments, his Chief Strategist’s association with white supremacists not without, they do believe his sober direction means that it is unlikely to derail the likelihood of an interest rate hike in the US economy this side of Christmas.
True, markets are only operating on speculation currently, but this is enough to see the Dollar regain some of its lost strength. However, as the Sterling section mentions, the Pound is also benefiting at the moment, which explains the current stalemate on GBP/USD rates. An interest rate hike would certainly break this status quo, and as such moving forward, it seems those buying US Dollar may be subjected to more risk than Dollar sellers in this current market over the next three weeks.
If you are looking to buy US Dollars you may wish to secure the exchange rate and the recent gains made by the Pound to avoid any risk in the near term. You can contact your account manager on 01494 725 353 to discuss how to secure exchange rates for a future purchase using only a small deposit.
Buying Australian Dollar rates have also been subjected to serious swings following the US election. The primary reason is the relationship between the US Dollar and the Australian Dollar, and fortunately for those converting Pounds to Australian Dollars the evolving situation in the US improved GBP/AUD buying rates. Firstly, due to the heavy dependence on the Australian economy for demand for their exports on the commodities market, the image of a stable US tends to help confidence in the Australian Dollar in general.
This is a reflection of the size of the US economy as being a deciding factor in global demand for goods. Trump was seen as anything but stable, when he was initially confirmed President the value of the Australian Dollar came into question, with GBP/AUD exchange rates reaching up 3% in a single day.
Whilst Trump later presented a more unifying and conciliatory tone and created a greater sense of stability, this then had the effect of a double edged sword on the value of the Australian Dollar.
Initially the timeline for the next US interest rate hike sat squarely in December, and Trump’s heavy support for such a hike makes the occurrence even more likely. One of the most attractive features of the Australian Dollar is its high interest return compared to other currencies, sitting at 1.5% compared to 0.25% in the UK and 0.5% in the US. However, due to its attachment to the commodities market it is not a ‘stable currency’, which is why it does not enjoy universal demand.
As such, any hike in the US interest rate will give another option for investors hoping for higher returns on their capital but who are not willing to gamble on slightly higher returns of a currency proven to be unable to hold its value for a consistent period. Capital is being moved into the US Dollar ahead of time as financial speculators gamble on the result, and the resulting lower demand for the Australian Dollar this has allowed GBP/AUD rates to be the biggest winner for Sterling holders since Trump’s election.
However, with so much of the current climate governed by politics relying on further gains in this current climate holds risk of its own. Given the recent gains on the Dollar, buyers may be wise to seize the movements in their favour by speaking to their account manager and getting a precise understanding of where buying levels are in order to make an informed decision. As always, our clients should note that these current buying levels can be fixed in place for anyone planning a foreign currency purchase in the future.
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