Each and every year, the world’s political and financial events have considerable effects on the way the foreign exchange markets perform. From the price of commodities globally to the strength of one currency against another, everything from a U.S election, to a financial meeting can completely change the trading landscape as it stands – at least for a period of time.
As 2019 begins to draw to a close, traders, forex brokers and everyday travellers alike have had a tough year as far as predictions and managing the markets is concerned. Here, we’re taking a look at why.
The US-China Trade Deals
If there was ever a confusing trade war, the US-China trade deal is certainly amongst some of the most infamous. Even the top Forex brokers and prediction technology can struggle to determine just what America or China will impose next. From as early as the 1980s, President Donald Trump stated that the U.S. trade deficit needed to be reduced and the way to do that would be to impose tariffs against its trading partners. Given that China is one of the world’s largest economies, they were an obvious target.
Trump began setting tariffs and other relevant barriers against China in order to create a ‘fairer’ trade system, even in light of China’s otherwise unfair trade practices. This triggered an economic conflict between the countries, that have seen consumer-facing prices raise due to an increased strain against farmers and manufacturers in the U.S. Despite this, the US Dollar has been performing well. Those operating within the Forex marketing utilising USD have seen a lucky few months, with the currency having risen over the course of the year. As the global reserve currency, it’s growing strength could be due to news that the US and China could be on the edge of a deal.
Brexit
The uncertainty of Brexit is nothing new for the UK and Europe, but the longstanding turmoil the triggering of Article 50 has generated has certainly played quite the number on the Forex markets over the past couple of years. In 2019 alone, we’ve seen a missed deadline of the 29th March, several extensions due to a failure to agree on a withdrawal agreement, and a leadership change after previous Prime Minister, Theresa May, stepped down.
As expected, this uncertainty has not only made things difficult within the UK as far as business and foreign policy is concerned but has also had a drastic effect on the value of GBP. For the most part, the value has been on a decline. While there have been slight rises and general volatility during some of the more pressing political events, the pound sterling to Euro exchange rate is around 15% lower than it was before the referendum back in 2016.
Source: https://www.xe.com/currencycharts/?from=GBP&to=EUR&view=5Y
While GBP does recover some of its losses on occasion, the seemingly constant political turmoil can send the pound crashing again before it can recover fully. The uncertainty surrounding the final withdrawal agreement and even the final withdrawal date has been more than enough to unsettle the UK economy and the rest of the global forex market as a result.
The G20 Summit
The very first G20 summit to be hosted by Japan, this year’s event in Osaka had the U.S currency markets holding their breath. With the attendees of the meeting accounting for around 85% of the world’s GDP, decisions made here can completely disrupt the way that the financial world is working at any one time.
In the run-up to the event, it was expected that this year’s G20 summit would be used to discuss trade wars and tariffs, the Iran crisis and, of course, climate change. At this event, Donald Trump and the Chinese Present, Xi Jinping, were expected to meet separately to discuss the US-China trade war that had been occurring at the time.
For this reason, the markets as a whole saw stocks rising in the US on the Friday before the summit, with the Dow Jones Industrial Average appearing to be in a great position for its best month since 2015. However, the U.S Dollar was also seemingly on hold while the markets were awaiting news from G20, holding steady against other countries in light of a potential truce between the U.S and China.
While these events were hardly the only ones to have an effect on the economy, they all showcase just how much a political event can have an effect on the financial markets as we know them. The USD remained the most stable and convenient investment choice for yet another year, however, the likes of the GBP needs the UK to regain a bit of political stability before it can recover from the drastic losses over the past few years. Only the future will tell just how these currencies fare in the future and we’re looking forward to finding out.
