The dust has settled and we have been through what can only be described as a volatile week for economies and political establishments. Since the US voted for their new republican president we have seen protests round the world, huge movements in currencies and lots of political leaders eating humble pie. What will happen in the coming weeks will be even more interesting to say the least.
Despite all the gloomy predictions the US Dollar has gone through one of the best weeks since the beginning of 2015. After the initial drop in value against the Euro (hitting $1.1293), the Dollar has recovered to reach a yearly high of $1.0716, quite a drop in the space of a week for the Euro. The lowest the Euro has been against the dollar in the last 10 years is $1.0499 could we see that level reached again in the coming weeks or even parity?
Germany; the powerhouse of the Eurozone has seen a lower than expected rise in GDP (for the quarter) this week, delivering growth of 0.2%. The Eurozone as a whole showed industrial production shrink month on month with -0.8% growth, this is fueling speculation that the Eurozone is still under performing and its members are struggling to grow their economies.
Worries about the Greek economy are still in the background, as is speculation about Italian banks. With Italy only posting 0.8% growth in the last year, rumor has it that it could be the next country to exit the single market, especially if the poplar comedian Beppe Grillo takes charge next year.
On that subject, the main cause of instability in Europe appears to be the impending elections for most leading members of the Eurozone next year and as we have seen with Trump and Brexit, nothing can be ruled out at this point. This means France, Germany, Italy and the Netherlands could all deliver unexpected (and worrying) results next year. In each of these cases, we have politicians (and comedians) who could pull their country out of the Eurozone and if that happens, it could very well bring the EU to its knees.
So whilst America has elected a man with no political experience and who seems to put his foot in it more often than Boris Johnson on a good day, there are more worrying signs on the horizon if the electorate continues to give the political elite a (much needed) kick up the backside.
Trump may not have won the popular vote and he may be the most controversial person to ever sit in the White House, but he does have a lot of business experience (despite going bankrupt 4 times). As long as he has decent people around to support and advise him, you could see the US economy reach dizzying heights over the next year. Trump has also promised to renegotiate trade deals and make sure that it pays to buy American. If this continues then you could see decent growth, causing the Federal Reserve to hike interest rates which is only going to make the dollar even stronger.
The UK continues to deliver good economic news, however we will only find out the true effects of Brexit once article 50 is invoked next year. Currently trading at €1.1612 against the Euro and $1.2433 against the Dollar, the pound has clawed back some value after the post Brexit vote drop. Due to the uncertainty in the markets, it could be a good time to buy your Dollars and Euros as anything could happen in the current economic climate.
One thing we do have going for us at the moment is President Elect Trump has a soft spot for the UK and like it or not, the UK does best when we act as a go between for the US and Europe. Whilst this would work much more in our favour if we voted to stay in the EU, this should put us in a (slightly) better position for the next few years of Brexit negotiations in the hope we can wrap up an early trade deal with the US.
What we can take away from all this is that the US economy is on the up despite initial worries about the Trump administration and we may see parity between the Dollar and the Euro in the not too distant future.
Political uncertainty is going to dictate markets in Europe for the next few months as campaigning starts in Europe, perhaps this will be a welcome Brexit distraction once article 50 is invoked.
So whilst we may or may not like President Elect Trump’s views, we will have to work with him for the next 4 years, so lets get on with it, as there could be worse on the horizon!