What a year 2016 has been.
There are two events in particular which stick out in my mind. The first is Brexit and the aftermath of the UK positioning itself to leave the European Union. The second is the election of Donald Trump as the next US President.
Both of these events - along with a few significant others - will continue to play out over the course of 2017. To help you navigate the priorities of the major central banks for next year, I’ll be publishing two posts over the next couple of day with my thoughts on each of the major central banks and their respective currencies.
The first post is below and details my thoughts on the Federal Reserve, the Bank of England and the European Central Bank.
If you want more detailed analysis, please join my Facebook Group. This is the community where I’ll be sharing some more insights with throughout next year.
Join here > https://goo.gl/mkvJgY
🇺🇸 THE FEDERAL RESERVE - USD
The Federal Reserve has recently hiked rates to 0.75%. So can we expect further increases during 2017? Well, I’m fairly confident that Donald Trump’s election victory make further US interest rates more likely in 2017.
But it’s not just my instinct which is giving me this feeling, it’s the behaviour of investors and where they are moving their capital. Since Donald Trump's election, global bonds have lost over £1 trillion in value during a significant investor sell-off. They’ve started moving their capital into equities, believing that Trump will create a domestic framework which is very pro-business.
Investors think Trump will implement inflationary policies, increasing the chances of interest rates rising. However, this all depends heavily on the kind of trading arrangements he can secure with partners in North America and beyond. An insular America which starts trade wars could have an adverse impact on US employment and business spending, reducing the likelihood of a rate rise in 2017. All things considered, I’m expecting the USD to sustain its strength well into 2017.
🇬🇧 THE BANK OF ENGLAND - GBP
The full effect of Brexit has yet to unfold - and early 2017 will very much be dominated by the timing of Article 50 being triggered and the subsequent formal negotiations with the EU. With the UK economy continuing to show resilience following the Brexit vote, expectations for any immediate easing by the Bank of England have now completely diminished.
Considering the Bank of England’s increasing concerns over inflation, there is currently no clear bias in regards to future monetary policy expectations. Risks to the UK economy remain to the downside, with the UK/EU negotiations likely to play a pivotal role once underway. Inflation data should be watched very closely and poses a significant risk to my current view.
🇪🇺 THE EUROPEAN CENTRAL BANK - EUR
With the ECB extending its QE programme and presenting a dovish tone at their December meeting, my fundamental bearish bias for the euro has increased even further and I expect the euro to remain pressured for the foreseeable future.
There are a few primary reasons for this. The first is that employment in the Eurozone has decreased to its lowest level in seven years at 9.8% for October 2016. The second is the stability of the European Union following Brexit. My feeling is that the UK referendum and subsequent negotiations will give rise to nationalist sentiment spreading across other EU countries - such as France, Italy and the Netherlands.
I’ll publish PART TWO of this post in the next few days. Remember, if you want more detailed analysis throughout 2017, please join my Facebook Group > https://goo.gl/mkvJgY