Brexit was the principal key occasion that astonished the foreign currency markets back in late June, with Sterling the undeniable setback of the Yes vote.
Prior to the vote, one pound purchased about $1.50, however now you would be fortunate to get $1.25 . Strangely, the pound did not achieve the current year’s low point until mid-October.
Will the pound regain strength in 2017?
The British government will trigger Article 50 and start consulting with the European Union in 2017. This will decide the bearing of the pound against key monetary standards, most clearly against the euro, one year from now.
In any case, other elements will have an imperative impact on the pound. Sharply rising inflation is forecast for the British economy, which should drive the Bank of England to raise its base interest rate in the next few months.
This combined with the fact that the pound is currently undervalued on a purchasing power parity basis, suggests that the pound will strengthen against the euro over 2017. Since mid-October, Sterling has recaptured some of its post-Brexit vote losses, currently sitting at €1.19.
At BNP Paribas, worldwide head of FX Strategy Steven Saywell is optimistic about the pound, as he believes that the markets have already priced a worst-case scenario ahead of Brexit negotiations. As indicated by Steven, Sterling will ascend against the euro to €1.25 per pound before the finish of 2017, as a portion of the pound’s undervaluation is rectified as the Bank of England likely raises financing costs.
US Dollar to be a 2017 winner
The shocking US presidential race win by Donald Trump has prompted more hopeful figures of US financial development in 2017, as he is slated to cut charges and major investment into infrastructure and defence.
In the meantime, the Federal Reserve is expected to raise interest rates stateside as inflation rises.
The US dollar record (which measures the US dollar against a blend of monetary forms) has acknowledged 10% since the middle of 2016
What’s more, I expect that these two factors of higher inflation and higher interest rates together will lead the US dollar to appreciate further next year.
Euro a likely loser next year
- March 15: The Netherlands – Parliamentary elections
- April 23 and May 7, 2017: Rounds 1 and 2 of the French Presidential election
- June 11 and June 18, 2017: Rounds 1 and 2 of the French legislative election
- Autumn (August-October) 2017: German parliamentary elections
These elections will introduce a lot of uncertainty into the EurozoneEuro zone, which could well weigh on the currency over the next year.
At the same time, the European Central Bank is very unlikely to raise interest rates in 2017 as inflation remains very low, and unemployment uncomfortably high across France, Spain, and Italy.
BNP Paribas sees the euro at parity against the US dollar by end-2017, so weaker than it is today.
So of the major currencies, the US dollar looks set for further strength as we go into the new year.
So of the real monetary standards, the US dollar looks set for advance quality as we go into the new year.
One simple approach to get the presentation to the US dollar is by means of a trade exchanged store holding US dollar resources like offers or bonds.
One trade exchanged store (ETF) that can be purchased like an offer and which give the holder introduction to the US dollar is the Pimco here and now high return corporate security list ETF (code SSHY in London).
This ETF is evaluated in pounds and puts resources into US-based high return corporate securities. It will accordingly profit by any US dollar quality, and right now has a profit yield of 5%, attractive to income-seeking investors.