If you’re looking for the best time to buy foreign currency in 2019, we’ve taken into account the political and economic factors likely to impact your exchange as we go into the new year. Read on for information impacting the pound, euro, US dollar and Australian dollar for our thoughts on when to transfer currency.
The pound is likely to face further challenges in 2019 as we await the next stages of Brexit, with all eyes on Brexit day, 29th March. However, Decembers political turmoil for the UK means that we are still no closer to fully understanding exactly what Brexit means.
The constantly changing nature of Brexit makes it difficult to predict. It does seem likely the uncertainty will persist and any breakthrough may be short-term, whilst the market continues the search for the certainty that has been so lacking since 2016.
Even with progress being made, I feel sterling may remain on the weaker side as we await the final news that will remove the uncertainty inherent in the UK since the EU referendum, both in politics and for the economy.
Brexit day is the 29th March 2019, when the UK is due to leave the EU. December saw an important ruling by the European Court of Justice, who stated that the UK can withdraw their Article 50 notification without prior consent. This means that should they wish to, the UK can effectively stop Brexit.
Brexit may still go in any of the directions on offer, including a no-deal. There are also many options in the middle including a rehash of Mrs Mays unpopular Brexit plan, a Second Referendum and even a General Election which might well be fought based on which direction the country takes.
Sterling is desperate for some positive news to provide some structure and direction for the currency. The pound has at times found itself untradeable as investors shy away because of the deep uncertainties of future outcomes.
Mrs May is determined to fulfil the will of the 2016 Referendum; for the UK to leave the EU. She has repeatedly stated it will happen as planned on the 29th March 2019. It might be that early 2019 sees a motion of no confidence in the Government and Brexit pushed back as the UK seeks an extension to the Article 50 process.
I feel that sterling is likely to remain weaker for much of 2019 until there is some clarification over what is really happening on Brexit. Any Second Referendum or General Election would likely see the pound weaker as the market has to factor in the possible negative outcomes from these events.
A reversal of Article 50 could see the pound rise depending on what the political backdrop to this is. A complete cancellation of Brexit is extremely likely to see the pound rise, whilst the revoking of Article 50 with an expectation for Brexit to go ahead longer-term would perhaps see a more tentative rise.
Sterling will also be in the markets eyes owing to economic data as investors pore over the statistics to determine the economic impact from Brexit uncertainties. If the UK economy appears to be on too much of a negative trajectory the Bank of England might well be forced to cut interest rates, which would weaken the pound.
Economic news in 2018 was mixed with Unemployment falling, but economic growth likely to increase by a meager 1.3% for the year. Whilst this is much better than the worst predictions prior to the Brexit vote, this has put the UK in the bottom of the economic growth stakes for leading economies.
2019 should be a pivotal year for Brexit as we learn what it really means and what happens next. With so many options still on the table the pound could be headed in all manner of directions. If all goes according to current plans the transitional phase on Brexit is due to last from March 2019 to Dec 2020, and Brexit negotiations on trade will begin. The pound could continue to behave in the familiar manner of the last 2 ½ years, reacting to the headlines but leaning to the weaker side with no concrete news on the exact future deal finalised.
Any major movement may come from the events like a Second Referendum or General Election, which are gently priced in, but outside of most central forecasts. As these events become more or less likely, sterling should behave in a predictable manner, rising on the lessening chance of these perceived negative events, falling if they look more likely.
Sterling is likely to eventually find its feet as the market digests exactly what Brexit means, but 2019 might not be the year for this to happen and hence, might see sterling remaining weaker. Ultimately, 2019 appears to be another turbulent year for the pound with no clear path back to its previous historical strength and market confidence.
The euro enters 2019 in a mixed tone as the ECB, (European Central Bank) seeks to withdraw the QE, (Quantitative Easing) program, indicating its positive outlook for the region. This is against the backdrop of a worsening global economic outlook as the Trade Wars threaten global growth. The recent ECB meeting highlighted this gap and I feel this will be a further battle for the euro in 2019.
The strength and weakness of the euro will also be determined by political news and 2019 could be a tumultuous year with European elections in May. Politics has been even more important in recent years with key developments in the political landscape across Europe, including trade with the UK and Brexit.
After a sustained period of strength in 2017-18, I expect the euro to come under pressure in 2019 as the negative effects of the Trade Wars weigh further on an already fragile economic situation. Italy could really feel the pressure from this having suffered from economic growth of -0.1% towards the end of 2018. If this turns into a full-blown recession the market is likely to become fearful and concerned over debt concerns resurfacing.
Germany, the economic powerhouse of the Eurozone has been struggling in the economic growth stakes as its economy cools. Growth for 2018 was revised down from 1.8% to 1.5% towards the end of 2018. With growing concerns on this topic but the ECB pursuing their tightening of policy, the Euro might find tough ground to cover.
Recent years have seen growing anti-government parties across Europe gaining support, Italy being a great example. This has led to a breakdown in the previous path of Europe and the Eurozone, towards closer integration between the members.
Recent political developments have seen countries adopting more personal agendas, to reflect the goals of the citizens within their respective country, rather than pursuing a more cohesive ‘European agenda. This shift has been underscored by Angela Merkel announcing she will step down, removing one of the key figures who embodied this ‘closer Europe.
Attention in 2019 will focus on who or what will fill the gap left by Merkel with concern over rising populist far-right and left factions across Europe. These concerns are not new, the market has been grappling with such sentiments since the financial crisis 2009-2010 with Greece. The difference now is that there is no Merkel or clear strong leader willing to lead Europe through such testing times.
The Euro is looking like it may face some tough questions in 2019 as the market has to digest many global and domestic issues which the economy may not withstand. On the positive side, the expectation of an interest rate hike much later in 2019, or 2020 might help support the currency if as the ECB has suggested, the recent lull in economic activity is only temporary.
Another factor for the Euro and Europe is of course Brexit and how the market begins to factor in what lies ahead for the future. The Euro continues to silence its critics who predict the debt problems will escalate into something larger. Betting against the Euro could become easier in 2019 but it seems likely to be a more mixed year of performance for the single currency, as it reacts to the ever changing world in front of it.
The US dollar continued its dominance in 2018 as higher interest rates and a very strong economic performance continued to support this now higher yielding currency. Investors are very happy to buy into US dollar denominated assets as the country weathers the Trade Wars storm and the higher interest rate provides an excellent return on investment.
2019 could see increasing concerns from the Trade Wars and their political and economic outcomes at home and abroad. Market watchers are also tracking the economic performance of the US economy with a view to understanding whether or not it has peaked. By some measures a US recession is looming large and this could easily destabilise the dollar in 2019. Donald Trump should continue his controversial Presidency and this will surely attract further attention from market observers.
2018 saw the US dollar weaken dramatically, to almost pre-Brexit levels against sterling, and a 4-year low against the Euro. This was based on the expectation the Trade Wars would dramatically weaken the US economy and halt the US central banks ability to raise interest rates. In fact, assuming the Federal Reserve raised rates on the 19th December, it will be 4 interest rate hikes in 2018, taking their base rate to 2.25-2.5%.
Considering the UK is at 0.5%, and the Eurozone still in negative territory, this makes the US dollar a particularly attractive currency for investors to hold. Clearly, the Trade Wars are not holding back the US. The actual market viewpoint now is that whilst the concerns over trade might disrupt the US economy, the US is likely to be the least affected against the other countries who will feel their impact. Therefore, the US dollar has been finding strength from the Trade War concerns, a reversal of previous sentiments. 2019 should see a continuation of this back and forth, as the market struggles to determine its viewpoint on the issue.
Trade Wars are potentially a threat to the strength of the US economy in 2019, as the market may eventually have to take account of a slowing US economy. As the expression goes ‘what goes up, must come down and so at some point the US economy could falter. The paradox is that Trump, in engineering these trade disputes, could ultimately trigger a slowdown the global economy, which might well lead to a recession in the US.
Following the financial crisis, the Fed started their current path of interest rate rises in December 2016, following in 2017 with 3 hikes and 2018 is likely to have been 4. The US Federal Reserve are predicting to raise 3 times in 2019 but for the reasons covered, this might not be the case. Any deviation from this path could see an unsettling of the US dollar.
The market will continue to closely monitor the various measures of economic data on the US economy including economic growth and Unemployment. The first Friday of every month will be important as the market receives the latest Unemployment and NFPR, Non-Farm Payroll data which will be indicative of how the US Labour market is shaping up.
It is my opinion it will be the commentary of the Fed and to what extent they deviate from their current expectations, which could be a major driver for US dollar exchange rates in 2019.
2019 could well be the year when the recent strength of the US dollar comes undone as the negative effects of the Trade Wars weighs on economic demand at home and abroad. With the currency market pricing in 3 more hikes in 2019 but this likely to need revising, any backtracking by the US central bank may destabilise the US dollar.
We should also expect more controversy from Donald Trump with all manner of possible negative political situations for him to face down, which may also weigh on sentiment for the US dollar. The greenback is the clear winner of 2018, 2019 is not looking quite as straightforward.
The Australian dollar will face some familiar challenges in 2019 as the currency market continues to look towards the possibility of any interest rate hikes down under. The Australian currency saw excessive volatility in 2018 owing to the Trade War concerns and the mixed views on how they might be influencing the Australian economy. This issue should continue and may potentially become more influential for 2019.
The Australian economy also faces headwinds at home in the form of a possible housing crisis as house prices slide and consumers remain highly indebted. With concerns over the Australian economy stalling as a result, the RBA, Reserve Bank of Australia might be forced to backtrack and might need to even consider cutting interest rates in the future.
The Australian dollar is a commodity currency that has a close relationship to sentiments on global trade. 2019 looks set to see the Trade Wars continue which are likely to continue to put Australia and their biggest trading partner China, under pressure.
The Australian dollar has been very sensitive to this news weakening dramatically in 2018 at various points as the market became fearful over the Trade Wars and the negative consequences. Likewise, as the sentiments shifted to a belief the trade concerns were not as bad as predicted and were manageable, we saw the Aussie rising in value.
Predicting the next steps and behaviour of the main proponent of the trade issues, Donald Trump, is not easy. The fallout from the dispute between China and the US will feature heavily in 2019 and particularly if the US and Chinese economies begin to slow, may be viewed in a negative light, which would make the Australian dollar more likely to weaken.
China accounts for over 30% of Australian exports, the main product being Iron ore. A strange feature of the trade disputes has been that such concerns have caused Iron ore prices to rise at times, which in turn has helped the Aussie to rise in value. Such complicated and intertwined features of global trade and the currency markets make predicting the exact nature of the market difficult, highlighting the importance of careful monitoring of the market and trends.
Global trade concerns will be a real feature in 2019 which might see the Australian dollar weaker. Whilst the mood on this topic may continue to wane, the overall view that such concerns are fundamentally bad for global growth, should put pressure on the Aussie.
The RBA will be very much in focus in 2019 as they juggle an economy that is facing difficulties, against a very uncertain future global trading environment. Ultimately, a weaker Australian dollar is good for the country since it makes their exports less costly and helps fuel economic growth.
One of the main domestic concerns is a slumping housing market. According to the OECD, Organisation for Economic Cooperation and Development, Australian financial regulators should be making plans for a crash in the property market. Consumer debt is also very high in Australia which is another headache for the RBA in their decision-making process to raise interest rates.
The difficulties facing the Australian dollar may intensify in 2019 as the current trajectory of a weaker Australian economy, worsening Trade Wars and stronger US economy, all contribute to making the Australian currency becoming less attractive to hold.
If you are considering a currency transfer, buying a property abroad or looking to bring funds back to the UK from overseas, 2019 has a number of potential events which could create some excellent opportunities for well-prepared buyers and sellers.
In any event, our currency experts are on standby to answer any of your questions, so feel free to call our trading floor on 01494 725 353 if you would like to discuss a transfer.
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