In what has been a spectacular year so far, the latest twist in the currency markets comes from the US, and it’s not at all what markets were expecting. The US Dollar looked sure to maintain if not benefit from uncertainty in Europe, a currency that tends to fair well in times of trouble, has in fact stirred market angst with speculation of more war.
It’s not what markets had expected from the inauguration of Donald Trump, sure his unorthodox campaign presented some concerns, but his apparent determination for bringing back jobs and boosting the US economy were enough words to give US Dollar bulls a wet appetite.
Better days for the Euro?
A Le Pen run off against Macron was the exact scenario markets were hoping for. Whilst Macron has little to no experience in politics, his career as a banker and support for the Euro makes him an ideal candidate.
The polls whilst not always accurate, predicted the top two candidates with little margin of error, now Mélenchon and Fillon supporters in France have a choice between Macron or the far-right Le Pen.
For Le Pen to win, she must capture as many of these supporters as possible.
The latest string of economic data from the Eurozone also looks optimistic, with the latest PMI figures on Friday giving Euro investors something to cheer about, consumer confidence on Thursday also showed signs of improvement.
Inflation has also held steady in the Eurozone and all in all, Euro investors have reasons to remain optimistic despite some obstacles this year.
Unfortunately, the same cannot be said for the US Dollar and commodity based currencies.
Markets losing patience with the FED and Trump
Where are the tax reforms and the Obamacare replacement? Less importantly, what happened to the wall around Mexico that’s expected to cost in the region of $30bn?
More importantly, why have the FED been quiet about the next rate hike and is one going to happen at all?
Tensions in Syria and North Korea have also taken their toll on the US Dollar and markets are backing away from the safe-haven currency for safer alternatives.
When China sneezes, Australia catches a cold
This will have an impact on the commodity currencies, given that many are priced in US Dollars. This does explain to some degree, why the Australian Dollar has weakened somewhat against the Pound, but it doesn’t explain the full story.
China’s latest GDP figures for Q1 fell short of its predictions at 1.7%, which has lead some to believe China could be on the verge of more problems.
Given that China is Australia’s largest trading partner, woes in China tend to impact the AUD.
Will the Pound continue to make headway against the likes of the US Dollar and AUD? The snap election in June may be the next biggest shift in Sterling exchange rates, but with Brexit negotiations set to commence soon the Pound has many hurdles to climb.