Politicians and #Forex: How May and Trump impact exchange rates

With British MPs leaving the Labour Party and the Conservative Party to form a new Independent Group in Parliament, the political landscape in the UK is becoming increasingly unstable, especially with the UK due to leave the EU in March.  

A new survey has revealed that over 50% of the British electorate now back the formation of a new political party, but the ramifications of such a split go much further than just opinion polling, because politicians have the ability to influence currency prices such as GBP/USD.

GBP against USD is popular with forex traders due to the economic size of both countries. However, in the past few years, we’ve seen increased volatility in the pair due to the political announcements of Theresa May and Donald Trump. Here are just a few examples of this:

June 2017 – May loses parliamentary majority

After she called a snap election with the hope of increasing her parliamentary majority to secure Brexit, Mrs May’s gamble backfired and she lost seats, leaving the Conservative Party without a majority in Parliament. The uncertainty of the days and weeks that followed meant mass market volatility and this caused the pound to tumble from almost 1.30 against the dollar to below 1.28.

Image: Pixabay

February 2018 – Trump’s spending plan

On February 12^th, Donald Trump proposed a $4.4 billion spending plan, stating that America was behind other countries in terms of infrastructure. The announcement did not go down well with investors and market analysts, and USD fell against several major currencies, including GBP, which climbed against the dollar for the next four days before stabilising just below 1.40.

March 2018 - Trump imposes tariffs on China

Citing "unfair trading practices", President Trump signed an executive memorandum to impose tariffs on Chinese goods entering the US. The dollar rallied against all major currencies in response, recovering from slumps caused by pre-announcement speculation.

September 2018 – “No deal is better than a bad deal”

Theresa May arrived at the UN General Assembly on 21^st September and reiterated her belief for Brexit, stating that the UK would rather leave the European Union without a deal than with a bad one; especially one that would impact the unity of the United Kingdom.

With only six months until the agreed date for Brexit, the markets did not react positively for the British Prime Minister, and the pound fell sharply against the dollar. Having risen to 1.33 earlier in the week, the announcement caused falls to below 1.31.

With only a month to go until Brexit, we are likely to see further instability in the GBP/USD pair in the short term, with the potential for even more market volatility, should more MPs defect from the two main political parties. With a potential £39 billion ‘divorce bill’ on the line between the UK and the EU, both parties will be looking for a swift resolution to the conflict.

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