This week, the pound experienced the sharpest recession in 13 months, having lost almost all of its gains from the conservative victory in the early elections because of fears that the United Kingdom could leave the European Union without a bargain.
The impressive majority of Tories will help break the legislative deadlock unless it is led by the rather tough stance of their leader Boris Johnson, which he will take in negotiations with the EU at the beginning of the transition period after Brexit and which all conservatives may not share
The GBP / USD pair “shot” to 1.3515 amid a crushing Tory victory, but then rolled back to local lows near 1.3060. The markets, on the other hand, again ran ahead of the engine, expecting the pound’s volatility to be left behind. In this case, comparisons with Donald Trump come to life again, whose rise to power marked increased uncertainty for stock markets, although, in fact, they contributed more to growth than to decline.
However, currencies function somewhat differently. Uncertainty puts pressure on quotes because it is associated with weakening economic data and implies a more cautious tone in monetary policy.
For comparison, since the arrival of Trump, the S&P 500 index has increased by more than 55%, having experienced only one strong correction at the end of last year. Over the same period, the USD index initially dipped by 15%, but since 2018 it has added 10% again.
Such increased volatility and the lack of a clear trend were characteristic of the pound after the 2016 referendum and are likely to remain with it at least for the next year.
As for the main currency pair, the factors that faithfully served the greenback during 2019 should have taken quotes below the base of the 11th figure. However, neither a series of positive macro statistics in the USA, nor the collapse of the British pound, nor the five-day S&P 500 rally impressed the EUR / USD bears.
The pair stalled near the resistance levels of the last two months holding on to the important waterline in the form of a 200-day moving average, this is after being unable to immediately overcome the 1.1200 mark
By the end of the year, surprises are not excluded, but so far the expectations are growing that even one of the main market movers of the market in the person of US President D. Trump can take a break until the end of the year, allowing players to postpone the battle of the trend for next year.
Greenback quite reacted calmly to the information about the support of the US House of Representatives by the idea of the impeachment of Donald Trump. It seems that the market does not believe that the Senate, where 53 of the 100 members are Republicans, will approve the Democrats initiative in January. Thus, the head of the White House can sleep peacefully and perceive the possibility of his removal from power as nothing more than a mouse fuss.
Theoretically, Trump could become the third president in the history of the USA, after Andrew Johnson and Bill Clinton, who was impeached. The first two were able to remain in power, as they were acquitted. In previous cases, both houses of Congress were controlled by opponents of the current heads of state. Given a divided Congress, the likelihood of a vote of those who don’t trust Trump is extremely low, and the Senate’s rejection of this initiative next month could support the dollar.
At the same time, the owner of the Oval Office does not get tired of promoting the idea of weakening the greenback. Perhaps it will be easier to implement in 2020 than in 2018-2019. The Federal Reserve is not going to aggressively tighten monetary policy, as it was two years ago, and the soon completion of the trade conflict between the US and the Celestial Empire can deprive the American currency of such a trump card as the demand of non-residents for treasury bonds. In addition, an increase in the chances for an orderly Brexit, as well as for the restoration of the British and European economies, should support the main competitors of the USD.
However, there are certain doubts about China’s ability to increase purchases of agricultural products from the United States to $ 40-50 billion. This is a colossal figure that Washington and Beijing have never come close to.
It is estimated that next year, US GDP growth will decrease from 2.2% to 1.8%. It is obvious that the US is losing steam, but it still looks healthy and can continue its economic expansion for the 11th consecutive year.
How will the eurozone respond to them? The resolution of Washington and Beijing trade disputes, as well as Britain’s exit from the EU with a deal, is good news for the euro, but not with Trump who is inspired by the success of protectionist policies, starts a trade war against the Old World. This year, threats sounded much more often than real actions were taken. Will something change in the new year? Time will tell. In the meantime, Christmas and investors are in no hurry to speed things up but rather prefer to sit on the sidelines.
The material has been provided by InstaForex Company – www.instaforex.com
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