MACROECONOMICS
A soft Brexit secures access to the single market.
Parliament is
understood to be less inclined to support Brexit than the population as a whole did. The larger the role of parliament, the more likely a soft Brexit. If
Article delayed,
triggering 50
or
is if
a protracted t ran s i t i on state can be negotiated, it may
also
supportive for sterling.
The sharp decline of sterling
on a
t rade-weighted index has already begun feeding through to higher inflation. The Bank of England is unlikely to respond to firming prices, accepting that the devaluation is a one-off, temporary boost to prices. The improvement in trade may take longer and be less pronounced than the impact on prices. Nevertheless, the decline of sterling, alongside the monetary and mild fiscal support, should keep the economy humming in the first half of the year. However, in the second half, the impact is likely to moderate.
A new and unorthodox administration will formally take office in late January, but Trump’s impact is already being felt. The
United States
FX
clear to us that whoever won, fiscal policy would become easier.
Having experienced the Reagan- Volcker dollar rally and
the be
It is true that China has been intervening in the foreign exchange market, but it is to strengthen
not weaken the
equity and bond market response to the election results is largely in line with the market’s response to Reagan’s election in 1980. dollar has outperformed.
The
Our dollar bullish view was based on the significance we attributed to financial and monetary divergence. On top of that, we place the more precarious European political situation. Ten, as the US primaries unfolded,
it became increasingly
Deutschemark overshoot following the unification of Germany (w h ich incident a l ly created a crisis for which mo net a r y union was the proposed so l u t io n ), we quickly recognized that the new policy mix is best for a currency - easier fiscal policy and tighter mo net a r y policy. It reinforced our bullish case for the dollar.
currency
It is not clear how much of what was
said during the campaign was
aspiration policy, declaratory policy, or operational policy. Also, it is not clear the extent to which the Republican Party in the legislative branch will cooperate with the Republican Party in the White House. President-elect Trump may find that the Democrats can support the infrastructure spending efforts, while the Republicans can support tax cuts.
FX TRADER MAGAZINE January - March 2017 15
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