FX MACROECONOMICS
the forces of movement appear to be in ascendant, in Germany the continuation of the status quo is the most likely scenario.
If the two
main parties fail to secure a majority, the Freedom Democrats (FDP), which had self- i m m o l a t e d during the initial stages of the crisis, will be reborn.
With the defeat of the r efe r e nd u m seeking to change the
size and
function of the Italian Senate, Prime Minister Renzi resigned, and former Foreign Minister G e n t ilo n i became Italy’s fourth successive unelected Prime Minister.
The
two pressing challenges are the fragile banks – burdened by bad loans, weak growth, and excess capacity – and preparing for elections.
The previous electoral law was ruled unconstitutional. The new electoral law for the lower house will be reviewed by the Constitutional Court in late January. At present, there is no electoral law in place
14 FX TRADER MAGAZINE January - March 2017 UK
With a slim majority, the British people voted to leave the EU. Exactly what it means is not clear. Europe
insists that the price of
single market access is accepting the EU’s immigration policy. European officials need to tread carefully. Tey need to be hard enough on the UK to provide an undesirable example
for the Senate. The caretaker
government needs to resolve these issues. An election in Q1 ‘17 seems unlikely. An election around midyear is more likely, but it is possible that Gentiloni stays a bit longer.
for other countries that might be contemplating leaving. At the same time, they cannot be so tough as to prevent cooperation with the UK on other fronts.
Prime Minister May wants to trigger Article 50, which begins the
formal
negotiations of the separation, by the end of Q117. There is an additional legal complexity because the extent May
that can claim
the royal prerogative is disputed.
Trump will likely be able to mold the Federal Reserve into the central bank he wants
The
Supreme Court is expected to make a ruling in the middle of January. There may
legal challenges that could cause future delays.
The issue is being framed as a hard or soft Brexit. A hard Brexit is the loss of access to the single market.
It gives priority to limiting
immigration. The market responds to developments that increase the risk of a hard Brexit by selling sterling.
be other
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