Earlier this year, the dollar reached a 35-year high against the pound. But will it continue to thrive in the rest of 2020? Not necessarily. There are some major events around the corner that are certain to come into play. Two in particular: the US election and the UK’s final exit from the EU.
At the time of writing the US election is only a fortnight away, and the pandemonium has well and truly commenced across the ditch. This combined with the never ending rhetoric of deal or no deal, and the December 31st deadline fast approaching, a volatile end to a tumultuous 2020 seems on the cards for not only financial markets, on both sides of the pond.
Let’s take a look at how these two major incidents could impact on the markets…and what we think might happen as a result.
Will it ever happen for real? Should it be stopped? Will Britain’s potential be unleashed, or are we in decline.
Talk to ten different people and you’ll get ten different reactions, and the only thing everyone’s sure of about the-event-that-shall-not-be-named is that we’re sick of talking about it.
Not that it matters. You can expect Brexit to still have a say in how sterling moves against the dollar in 2020.
On Brexit results day, the pound immediately fell by 19%, which shows the potential for a sharp shift once deadline day rolls around.
Will the same thing happen again – another sterling decline?
It’s not as set-in-stone as many hardened remainers might think.
After all, when Theresa May resigned and the prospect of a Boris-led Brexit reared its head – another potential trigger for a decline – Sterling actually rose by 0.5%.
Meanwhile, the threat of a no-deal – which has always spooked investors – reared it’s head again in September and promptly sent Sterling spinning.
What will actually happen?
Unfortunately, we still have no idea what kind of shape Brexit will take. (Deal? No-deal? Reheated deal? New deal? Your guess is as good as ours.)
Without this, predicting exchange rates is akin to throwing darts at a predictions board.
Now, let’s get onto the second major event this year. An event that’s just as calm and uniting as Brexit…
The US election
Yes, one of the most polarizing democratic elections in recent history is around the corner.
No political points to be made here, of course. We’ll simply say that if you’re planning to trade dollars for pounds (or vice versa) this year, then you need to keep an eye on the TV in November!
In 2019, Donald Trump seemed all for a weaker dollar to strengthen the US’s trade bargaining power. Fair enough.
Since then, though, the dollar hit a 35-year high against the pound. (And Trump has rallied against the Fed Reserve for raising interest rates.)
What’s more, the dollar strengthened upon Trump’s election in 2016, with traders anticipating more fiscal stimulus and higher interest rates. (Which, to be fair, they’ve been given.)
Speaking on behalf of Credit Agricole, Head of G10 FX Research & Strategy at Credit Agricole, noted that:
“The USD has benefitted significantly from President Trump’s policy mix of aggressive fiscal stimulus at home and trade protectionism….”
But what if Joe Biden comes away with the win?
Well, Thomas Flury, strategist at UBS’ chief investment office, commented:
“Given that Trump administration policymaking has promoted a stronger USD in recent years, markets are likely to associate a potential changeover to Biden with a weaker USD.”
Credit Agricole, meanwhile, highlighted that USD losses tended to be more “pronounced” when the incumbent president looked like losing.
So, if Trump wins, logic would say that the dollar will only get stronger.
Whether logic has anything to do with any of this, though…well, we’ll leave that to you!
How to get the best possible rates whatever the markets do
Nobody can control the way markets react to the fallout from either event.
However, you can control how much they affect you.
Right now, Privalgo are offering free FX audits to anyone planning a currency exchange.
If you’re interested, one of our FX currency specialists can help you identify the best way to proceed to ensure you get the best possible rates, no matter what the markets do.
If you’d like to know more, fill out the contact form below and they’ll get right back in touch. Or, if you’d prefer, you can pick up the phone and call us on +44 (0) 20 3880 0575.