12th January 2018
What will be the important events to keep an eye on? Which currencies are expected to grow and which will be more volatile? A new year brings with it some new trend in the foreign exchange market.
So to start off, we will review what transpired over the year 2017.At the beginning of 2017, the market was looking for the US dollar to explode on the Trump trade linked to Donald Trump’s massive fiscal stimulus. The market’s prediction was wrong, and the dollar collapsed. The market was looking for Europe to be rocked by the Brexit negotiations and political situation and looking for the Euro to fall consequently. Despite the market being convinced that the euro is going to crater over 2017, it was wrong, and the Euro rallied.The Eurozone economy saw the fastest GDP growth of the decade and the lowest jobless rate. After the political risk subsided, it rose over 14% against the dollar despite all of these bearish predictions. Finally, another consensus called that the UK economy was going to collapse following the Brexit negotiations. The uncertainty was going to keep the bank of England sidelined and possibly see them cutting rates again and consequently the Pound was going to collapse. This time too, the market was wrong, and sterling traded higher by over a thousand pips.
While the euro was the best performing currency of the traditional G10 currencies, no discussion on currency performance could be complete without talking about Bitcoin. From being virtually unfamiliar with becoming the most traded currency of 2017, the popularity of Bitcoin has skyrocketed this past year and has now become the primary interest of every forex trader. Trading of the cryptocurrency is likely to dominate this year as well.
So sitting at just under $19,000 per Bitcoin, the price of this digital currency has risen about 1,900% in 2017. Surging popularity increased usage, and adoption by businesses have made it more than just an underground money. It has now become a real contender who is now challenging the role of traditional currencies. With the rising popularity of Bitcoin, other cryptocurrencies have also been experiencing a growth in trade. Ethereum, which is the second highest traded cryptocurrency has risen an unbelievable eight thousand six hundred and seventy-three percent, whilelitecoin, another cryptocurrency has experienced an increase of seven thousand one hundred and forty-four percent by the end of 2017. The prices of these cryptocurrencies are expected to grow during this year, perhaps not at the same rate as last year.
The US Dollar is expected to bounce back in 2018 owing to the strong policy by the Federal Reserve (FED) and the tax holiday given to US corporations. The US interest rates are also expected to be increased by three times by the Federal Reserve. The FED has already raised the interest rate so many times this past year which resulted in a weaker US dollar.
As for the Euro, the currency has benefited dramatically from Eurozone economy may see a reversal of fortune this year. This would be mainly because of the elections in Italy in early March which would be too much for the European Union that is already dealing with Brexit negotiations.It is unlikely for the Euro to perform the same in 2018. The GDP growth is expected to fall subsequently making it harder for the ECB to reach its inflation target.
The Canadian dollar is also expected to strengthen due to the market expectations of tighter monetary policy and higher oil prices. The global economy is expected to support currencies like the Australian and New Zealand Dollar. The Reserve Banks of Australia and New Zealand are expected to raise their interest rate by the end of this year.
China’s growing economy has become a major attraction for brokers worldwide who are looking to expand. This will satisfy the growing demand of investors who want to buy foreign securities. Recently, Morgan Stanley and UBS intend to raise their stakes in their security joint ventures with the aim to expand their functionalities to China. Joining the league of Morgan Stanley and UBS very soon will be one of the world’s largest brokerage houses, Charles Schwab.
All the elections in various Eurozone countries have had a positive impact on the market the previous year. Investors now see a brighter future following the first stage of the Brexit negotiations, progress in the recent meetings of the Federal Reserve (FED) and the European Central Bank (ECB) and the US tax reform. The restricting monetary policies and inflation affecting most of the economies of the world will become the prime topics of discussion in 2018. The alternate cryptocurrencies are also expected to give Bitcoin a very tough competition. All we can do at the moment is wait and see what this new year has in store for us.
As of 4th January 2018, the revamped version of Markets in Financial Instruments Directive, MiFID II has gone live. Affecting banks, exchange trading venues, fund managers, high-frequency traders, pension funds, brokers and retail investors in the United Kingdom, this will make European markets safer, transparent and more efficient. The MiFID II is designed to tackle the under-regulated aspects of the financial system. With this system, investors will get the fairest possible deal. Not only that, but it will also update the existing rules to keep pace with the technological advancements.