Political uncertainty over the outlook of currency

Wednesday 30th November 2016 10:31 EST

In the early hours of Wednesday the 9th of November Donald Trump was announced as the 45th President of the United States. The Republican nominee achieved one of the most improbable political victories in modern US history but after surprise early victories in Florida, North Carolina and Ohio, an upset looked on the cards. The associated Press projected Trump had won Wisconsin and called the overall race for Trump, who passed the 270 Electoral College votes he needed to secure the presidency. Republicans have also secured majorities in the House of Representatives, the Senate and will probably get to reappoint a fifth Republican nominee to the Supreme Court – potentially leaving the new president with few checks and balances. Concerns about the impact of Trump’s presidency on the Mexican economy saw the Mexican Peso fall more than 13% overnight against the dollar - its lowest level in 20 years Trump's shock victory over Hillary Clinton initially triggered a massive selloff in risk assets - sending the yen, euro and Swiss franc higher - before turning around in volatile trade, helped in part by Trump's acceptance speech which focused on unity and economic growth. Federal Reserve held interest rates steady again in November while continuing to acknowledge that the case for a move is getting stronger. The Fed has held off on further tightening as inflation remains below the 2 percent target. In the few weeks of November after Donald Trump’s victory The Dollar resumed its uptrend off the back of largely positive economic Data. There has also been a growing perception that the economic policies of U.S. President-elect Donald Trump will push up consumer prices. Mark Carney confirmed that he will step down in June 2019 as Governor of the Bank of England. Mr Carney said the move 'recognised the importance to the country of continuity' during Brexit negotiations. As Donald Trump supported Brexit, one of only a few politicians around the world to do so, and slapped down President Obama who said the UK could be "at the back of the queue" for a trade deal after Brexit, UK politicians are positive about the US-UK relationship going forward. Theresa May led UK political congratulations for Donald Trump after his US election victory. The Prime Minister said that Britain and the US have an "enduring and special relationship" and would remain close partners on trade, security and defence. President-elect Trump has pledged to put the UK at the ‘front of the queue’ in any trade deal negotiations. Politics have dominated on currency markets in recent months and, with Britain's exit from the European Union still shrouded in uncertainty, Sterling has become much more sensitive to developments in that process than to economic data. Consumer Prices Index (CPI) inflation fell to 0.9%, from 1% in September which was below the 1.1% predicted by economists, who said Sterling's fall would push October's CPI higher. Data also showed Britain's jobless rate had fallen to the lowest level in 11 years. The British government is appealing against a High Court ruling that MPs must get a vote on triggering Article 50. The Supreme Court has confirmed that Wales and Scotland will be allowed to take part in the appeal. However, PM Theresa May announced that work was "on track" to begin the formal process of Brexit by April 2017. Chancellor of the Exchequer Philip Hammond ramped up his forecasts for government borrowing to the tune of an extra 122 billion pounds over the next five years. Preliminary UK Q3 GDP matched original estimates that have shown growth of 0.5 percent during third quarter of 2016. It was the fifteenth consecutive quarter of positive growth since Q1 2013. The Euro could weaken further in the near-term, should investors continue to worry over US-Eurozone relations and potential for internal EU political tensions. Political uncertainty has been weighing on the outlook for the future of the currency, in the run-up to a referendum in Italy and a presidential election in Austria. In a speech on 21st November European Central Bank President Mario Draghi defended the bank’s monetary policy actions once more, and repeated his calls for governments to step up their own reforms to boost growth. Draghi also said the bank needed to continue its supportive policies to bring inflation close to its target of 2%. But he said the European economy had shown resilience to the global uncertainty. On Dec. 4, Italian citizens will vote in a referendum on whether to overhaul their national constitution, which probably has to be amended if Prime Minister Matteo Renzi is going to push badly needed economic reforms through the country's complicated law-making process. The vote is widely seen as determining Renzi's political fate, and he may resign if a "no" vote prevails. Opinion polls show most Italians opposing the proposed constitutional changes, which economists say Italy desperately needs if it's going to streamline its government and spark growth.

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