A strong British pound can provide stability when other markets are experiencing volatility or economic upheaval, making it a popular investment choice. However, those who rely on their investments to generate an income risk losing out if the value of their assets decreases due to currency fluctuations.
People with fixed incomes, such as retirees and pensioners, may benefit from putting any spare cash into a range of savings products to offset the effects of changes in the exchange rate. To find out how important news events can influence the British forex market, read this article.
How the US Presidential elections influenced the British forex market
On Wednesday, November 9th 2016, Donald Trump was elected president of the United States. The result sent shockwaves through the financial world and especially the currency markets, where investors around the globe scrambled to buy US dollars amid fears that Trump’s trade policies would lead to a global trade war that would damage economic growth.
As he had promised during his campaign, Trump has threatened China with tariffs on Chinese imports should China not reduce its vast $350 billion trade imbalance with America over many years. He has also pledged to withdraw from nations that do not play by the international rules set out by Washington across all areas like security and economics. These pledges have increased concerns about rising protectionism worldwide, which may hurt economic growth.
The German DAX stock market was down by 5% on Wednesday immediately following Trump’s victory, while the price of gold was up 2%. The oil price held steady initially before falling sharply to under $45 per barrel at one point before recovering some ground, ending the day down 1%.
Concerns about inflation have increased due to higher energy costs which will encourage central banks worldwide to tighten monetary policy with an increase in interest rates. Higher interest rates could encourage investors to shift money away from assets like the euro and gold and into dollar-based assets as higher returns should central banks increase rates.
The next US president has promised to spend $500 billion fixing crumbling US infrastructure, which may boost inflationary pressure as demand for building materials such as steel, cement and copper alloys rises. This will be good news for manufacturers around the world who supply these goods, such as British engineering companies like Rolls Royce Group Plc (LON: RR), Balfour Beatty Plc (LON: BBY) and Carillion Plc (LON: CLLN).
However, this spending spree combined with tax cuts and a likely rise in America’s $20 trillion national debt will likely lead to higher inflation and rising interest rates, reducing demand for riskier assets like stocks, commodities and emerging markets.
How Brexit influenced the British forex market
The British pound’s value has shown some volatility since Brexit was announced on June 24th, 2016. With the election of Donald Trump as president of the United States and his promise to push for increased spending by way of infrastructure improvement, there is concern that the dollar will strengthen further at the expense of other currencies, including sterling.
The Brexit referendum has caused sterling’s value to fluctuate aggressively since June 2016, and it is difficult to predict how much its worth will decrease or increase over time. Despite this volatility, UK residents can regularly prepare for fluctuations in currency by checking the rates for travel and investment opportunities where there are favourable rates; particularly worthwhile considering investing money in risk-free assets such as index funds regardless of changes to the pound’s value.
These are just some examples of the potential issues that may adversely influence global markets, including the British forex market. It is essential to keep up-to-date on global news over the coming weeks and months so that investors can be prepared for any possible changes in economic conditions.