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2016 was a decidedly volatile year in terms of currency trading and 2017 could be just as unpredictable. This observation is further heightened due to the fact that (for better or for worse) Donald Trump is now the president of the United States. This situation leaves many currency traders wondering how the Forex markets will react to such an unexpected paradigm shift and how they can capitalize upon any sudden movements. Although nothing has yet been written in stone, there are still some important observations to consider.
The Impact of Trump-Style Protectionism
“Build the Wall” was one of the most common phrases in the Trump campaign. However, this can be extrapolated far beyond Mexico alone. He has promised to do away with many of what he considers to be “unfair” trade arrangements between the United States and major partners such as China. The main concern is that this populist approach may result in a weakening of the dollar and could even usher in a new era of trade wars (1). In such a case, the dollar would no longer be a safe haven and traders could turn towards more resilient currencies such as the British pound and the euro. It is also important to note that with a few exceptions, a new republican president tends to temporarily weaken the value of the dollar.
Another very real concern is the impact that a Trump presidency will have upon the market of emerging currencies. Many feel that these will suffer as a result of what can only be called a heightened sense of domestic protectionism. However, we need to keep in mind that Trump has already reneged on many of the “promises” made during his electoral campaign and it is likely that his cabinet will seek to tone down such rhetoric. It is still undeniable that traders will keep a close eye on the state of emerging economies.
A Favorable USD-GBP Scenario?
Many British traders will likely be looking to capitalize on the relative weakness of the dollar when compared to the pound. Of course, this only stands to reason. Such a movement may actually be quite favorable for Great Britain, as weeks of speculation in regards to the economic impact of the Brexit could now be superseded by concerns emanating from across the pond. It is therefore likely that the coming weeks will be highlighted by short-term ventures into GBP-USD trades.
The bottom line is that much like the equity markets as a whole, we are likely to see a great deal of uncertainty during the first quarter of the 2017 financial year. Thus, overall liquidity within the Forex sector is predicted to lessen as investors embrace a “watch-and-wait” approach. There is still no doubt that such a volatile atmosphere will dictate that traders must keep abreast of the latest news as it becomes available. CMC Markets provides expert analysis, access to live investor sentiment and late-breaking data when it is needed the most.
While the Trump presidency has taken the world by surprise, the immutable fact is that we are likely to witness a great many changes in the coming weeks and months. Those who can leverage such movements will be able to make the most out of this unpredictability.