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Market update - Trump and Brexit

Pound bounces between Brexit and Trump

By HiFX   /     Nov 16, 2016  /     Market Updates  /     , , , , , , , , ,

2016 has been a year full of surprises, which have had a major impact on the currency markets. Two events, of course, stand out as the biggest curveballs: the UK voting to leave the EU and the USA voting to elect Donald Trump as the next US President.

The Pound has generally been struggling since the Brexit vote in June, and in October it became the worst performing G10 currency. However, it has so far had more positive November, enjoying its best fortnight in several years with Trump’s election giving it a boost. So how will these two conflicting forces influence Sterling in the long term?

We’ve taken a look at what’s happened over the last week and what could be coming next for the Pound.

Trump wins; markets react

When it first became clear that Trump had done better than expected at around 1am GMT, the markets went into risk-aversion mode and the Dollar fell against the Pound and the Euro, as well as perceived safe havens such as the Japanese Yen and the Swiss Franc.

However, while Trump may have promised to deliver “Brexit plus plus plus”, with pledges to renegotiate trade deals and slap tariffs on countries’ imports, the overall market reaction appeared to be calmer than when the UK voted to leave the EU.  This suggests the victory came as less of a surprise to investors than the Brexit vote did. By about 5am GMT, the Dollar was starting to strengthen again and this trend has generally continued since then against most major currencies.

While it still remains to be seen what kind of president Trump will be, the markets currently seem optimistic that his policies will boost economic growth and result in an increase in interest rates. However, in the long term there may be some concerns about his protectionist policies and what his approach to trade deals could mean for the Dollar.

Pound gains against the Euro

As the markets settled during the week, the Pound emerged as a surprise winner, strengthening against 31 other major currencies. This is believed to be at least in part due to suggestions that Trump’s victory could be positive news for a post-Brexit Britain, as he has previously suggested the UK would be at the front of the queue for a new trade deal with the US.

Meanwhile, concerns have started to be raised around the Euro as attention turns towards upcoming political events in Europe over the next year, such as the Italian referendum and elections in France, Germany and the Netherlands.  Following the surprise results of the EU Referendum vote and the US Elections, investors are now unsure what further surprises these elections could bring and this is starting to put some pressure on the Euro.

Brexit concerns remain a risk for the Pound

There was, however, a reminder this week that Sterling continues to remain vulnerable to negative Brexit news. It weakened following media reports of a leaked memo suggesting that Britain had no overall plan for Brexit and the process was being hampered by internal divisions within the government.  While Theresa May’s office have dismissed the claims, the suggestions were enough to rekindle concerns among investors, particularly when combined with the weaker than expected inflation data released on the same day.

What next for the Pound?

For both Trump and Brexit, it is unclear what will happen next, so we may have to wait until next year for some certainty.

Trump will not be inaugurated until January – at this point, we will start to see whether he will be able to follow through on the promises he made prior to the election and what kind of president he will be. For Brexit, Theresa May claims that she is still planning to trigger Article 50 by March 2017, and we will then start to see how negotiations with the EU will proceed.

In the meantime, it seems likely that we will continue to see some currency volatility, as markets react to each piece of breaking news.

But rather than studying the headlines or constantly checking the rates, you can allow HiFX to be your eyes and ears in the market. You can monitor your currencies with our easy to use customisable currency charts and tools or log in to your HiFX account to get live quotes and set up personalised rate alerts.

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The details expressed in this transmission and accompanying documents are for information purposes only and are not intended as a solicitation for funds or a recommendation to trade. HiFX Europe Limited accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the above information. HiFX Europe Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2009, registration 462444, for the provision of payment services. HiFX Europe Limited is a registered MSB with HM Revenue & Customs – Reg No: 12131222. HiFX is a limited company registered in England and Wales. Registered number: 3517451. Registered office: Maxis 1, Western Road, Bracknell, Berkshire, RG12 1RT

 

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