As of late February, global politics are certainly having their impact on Forex pairs that are trending. Whilst it is typical for politics to affect the way in which pairs are valued and consequently traded on the Forex market, world leader in financial services, OANDA, recommends that the current political volatility in the key market bears extra scrutiny before trading, especially major pairs such as the EUR/USD or the GBP/USD. With much political activity throughout the Eurozone, in Great Britain and in the United States, those currencies are subject to rapid changes in valuation based on consumer concern with their respective economies.
It Only Takes One Misstep on the Part of a Leader
Before looking at which major pairs are trending and which are leaving room for concern, take a moment to consider how the leaders within those markets can quickly cause a spike or fall in their respective currencies. As an example, look at what happened to the market when Donald Trump won his bid for the White House, against what seemed like insurmountable odds. All the media said that Hillary Clinton would win and as it began to unfold that Trump was the victor, the stock market suddenly surged which was totally unexpected. As economies move, currencies run parallel, and Forex traders were quick to jump on the GBP/USD pair.
Why? Bear in mind that Great Britain had just voted to leave the EU and in the days that followed that summer referendum, the GBP fell to its lowest point in over a decade. Traders who predicted a rise in the dollar cashed in on trading that pair because it was almost certain that the pound wouldn’t gain much in value. In the end, savvy investors who forecast a Trump win and a spike in the value of the dollar won big. If they had the right spread, they stood to make a small fortune.
What’s Happening Today?
Oddly, the USD has not dropped in value and the Great British Pound sterling is still gaining at a snail’s pace. There is some concern whether or not Theresa May will invoke a hard Brexit in Article 50, but March is going to tell the story. If you are spread betting the GBP against the USD, keep your eyes tuned to how May and Parliament move on exiting the EU and how Trump works towards breaking off the NAFTA agreement which has been in force since the era of Bill Clinton.
A Glance at Late February Pairs
On 27 February, news of the Great British Pound is anything but encouraging. It appears to be stuck in limbo because retail is not doing well. With Trump’s plan to cut taxes for businesses, it is expected that there will be a pattern of growth in the American economy going forward, it is expected that the USD will see a surge but the GBP will almost certainly remain in stasis and as for the EUR, it’s anyone’s guess, also based on how May and the UK government unfold their exit strategies. In other words, politics are more active and volatile than usual so pay careful attention to the latest market overview before betting your majors.