A new year brings new challenges and after a tumultuous 2016, markets around the world are looking ahead to what 2017 will bring. Donald Trump’s presidency and the lingering ambiguity around Brexit will both no doubt have major effects on foreign currency trading this year.
Donald Trump has not taken office yet, but from what information he has given us we can begin to form an understanding of his economic plans for his presidency. Significantly, Donald Trump has stated his intentions to re-negotiate trade deals in order to ‘win’ for America. Trump is known for his bluster, but his failure to define what ‘win’ means will be creating uncertainty in forex markets.
Trump has publicly accused China of being a currency manipulator and has threatened to levy heavy tariffs on imported Chinese goods. In response, China has warned the US it will defends its trade rights through the WTO. If you partake in forex trading through a company such as CMC Markets then you will want to keep a sharp eye on the value of the US dollar and Chinese Yuan because both are likely to be significantly volatile for a while after Donald Trump takes office.
Meanwhile, Britain continues to struggle to define exactly what Brexit means and what it will involve. Both British and EU economies will remain affected by this uncertainty, though British markets are expected to suffer more. With no idea of what trade deals between Britain and other countries will look like once they leave the EU, markets are shaky and pessimistic. Early after the referendum, it appeared that Britain would be looking further afield to countries such as India and China in the wake of exiting the EU and losing access to the single market. However, some analysts are sceptical that Britain will come out on top of such trade deals. While still a powerful economy, India’s economy recently overtook that of Britain in December 2016 and China several years before that. This time, any trade deals are likely to be weighed against Britain.
This does not mean that prospects are completely gloomy. China has made significant investments in the UK over the past decade, choosing the UK over Germany and more generally the EU as their preferred investment in Europe. China will no doubt be eager to make sure that their significant investments in Britain do not go to waste. When considering the aggressive anti-Chinese stance of the incoming US presidency, it seems likely China will be looking elsewhere for trading partners in the west and Britain is well placed to fill that role.
Prime Minister Theresa May chose to travel to India ahead of China as her first trade visit as Prime Minister, signaling her intentions of increasing British-Indian trade. However, the recent nationalist spur of India’s economy overtaking its former colonial master and the issue of Britain limiting access to visas for India is likely to mean that deals are even less likely to weigh in Britain’s favour than China. The fact that Theresa May herself blocked attempts to open up the UK to more Indian IT specialists and other professionals before she was Prime Minister are also likely to colour any trade negotiations unfavourably.
What this means for forex markets is that the British Pound Sterling is going to be a volatile currency for 2017 and will likely remain unstable to some degree until 2019, when Britain intends to formally leave the EU, or until British access to the single market and trade deals with other partners have been hammered out. Neither of these issues appear likely to resolve in 2017, so markets remain skittish.
2017 appears to bring about significant geopolitical changes that will have huge knock on effects for forex markets. There is major uncertainty surrounding several global powers and major economies, leaving investments in several traditionally stable currencies to appear volatile. Investors should brace for the impact of Donald Trump’s presidency and Brexit when both formally happen, but both economies still remain major players in the market and should be viewed with increased scrutiny rather than outright discarded or ignored in favour of searching out for safer options.