The forex markets revolve around the daily happenings around the world. Geopolitical events, economical new releases, wars and natural disasters, all affect currency prices. And, when world leaders make important decisions, how can they not change at least the currency of their own country? This is why traders need to keep their fundamental analysis up to date, to be in a better position to make trading decisions.
In an age of increasing social media connectivity, news about crucial decisions taken by various political leaders travels at lightning speeds. US President Donald Trump is highly active on Twitter. We have seen how his tweets affect market movements almost instantaneously.
The Trump Effect
When President Trump came to power, many agreed that while his decisions could lead to US growth, it might not translate to growth for the global economy. American stocks indeed soared as he was elected, but many were skeptical about his decision to reduce imports and put trade sanctions on countries like China, Mexico, and Canada.
The US dollar surged following his press conference on January 11, 2017, just after he was elected. But, during the meeting, he failed to answer specific questions on tax cuts and infrastructure spending. As a result, the dollar tumbled even below ¥114 for a time, and almost to a 3-month low against the Canadian dollar.
Now, in September 2018, we are midway through Trump’s crusade to impose tariffs on various countries, including 5% tariff on steel imports and 10% tariff on aluminum imports from Canada, Mexico, and the European Union. Let’s take a look at the repercussions of this on the global economy.
- President Trump hopes for a 25% across-the-board tariff on imported automobiles. As a result, car prices would shoot up.
- Aluminum and steel are used in many products. Chinese goods have been subjected to tariffs; while Canada, Mexico, and the EU have decided to impose retaliatory tariffs on American goods. Prices of goods used daily are likely increase. Experts predict a $210 increase to the yearly expenses for an average family. Consumers, manufacturers, and workers will all be affected.
- Inflation will lead to tax cuts for US citizens.
- Thousands of jobs could be cut across US industries that depend on imported aluminum and steel. Experts suggest almost 2.6 million job losses.
- The EU wants to place $3.3 billion in tariffs on American products. China and Mexico are doing the same. Some of these products are agricultural ones, which would put a considerable burden on farmers who export. The commodity markets would, in turn, be affected.
The Brexit Effect
In another part of the world, the UK is preparing to leave the European Union. Everything depends on how well Prime Minister Theresa May and her associates negotiate to strike a deal with the EU. The GBP/USD pair went into a frenzy ahead of PM May’s speech on Brexit in March 2018. This was very similar to the conditions ahead of the Brexit referendum.
In the aftermath of her speech, it was clear that the UK might not have a deal by March 2019. The Pound Sterling dipped, trading almost at $1.396. A no-deal scenario could be even more catastrophic in the days to come.
World leaders and their decisions affect the global economy in a myriad of ways. For the trader, it’s important to keep track of these events and a cool head.