As the end of 2016 comes to a conclusion naturally we look forward to seeing how USD will perform over the coming 12 months. Will the Greenback continue to strengthen? and what data or political event will provide risk? However , it can also be insightful to review How the USD performed in 2016 and what led the Dollar to strengthen and weaken.
USD’s first quarter
At the Beginning of the year the USD was thrown into jeopardy by the worries regarding the Chinese economy. This uncertainty saw China’s industrial output slow to weakest growth since the great recession, a slide in the countries stock market value and Chinese debt levels which was fast approaching 250% of GDP panicked many markets.
The Dollar also was predicted to falter as crude prices softened in February amid fears over a global slowdown put doubts on the FEDS ability to increase interest rates in the near term.
Where the US Dollar hit it’s 2016 low
In May the USD dollar hit its year low against many of the major as Yellen took an extremely dovish tone highlighting that the FED would tread carefully before considering rate hikes. The comments saw the USD/EUR reach 0.86 and USD/GBP weaken to 0.6881. The most significant loss was seen against the JPY which surprised markets by introducing no further stimulus at its May meeting. This sent the USD/JPY falling to 106 and signalling a 16-month low.
Where US Dollar made heavy gains
Following the lows of early May, the month also saw the USD steadily recover following comments from William Dudley FOMC member who highlighted that it could still be possible that the FED could raise rates in 2016 rather than 2017 as many had now anticipated. The USD picked up momentum and June saw the USD/GBP strengthen significantly following the UK’s decision to leave the EU. The movement was the greatest spikes in decades and saw the Pound crash to a 31 year low against the dollar. Brexit saw the greatest depreciation of the pound in a single days trading volatility rivalled that following the Lehman’s Brothers in 2008.
GBP/USD moved violently following the UK’s decision to leave the EU with the rate moving from 1.4903 at midnight before the decision to 1.3675 just 24hrs later, before reaching a year low of 1.2159 on the 16 of October.
How will the Dollar perform in 2017?
With all US index’s finishing 2016 strongly you would imagine very well. The President Elect would appear to be beginning his reign in a stable economy. The Dow and S&P both breaking their respective records in December. The Dow headed steadily to the 20,000 milestone whilst the S&P 500 also gained to in excess of 2,268.
Crude is also performing well following OPECS decision to cut global production which has seen prices push comfortably above $54 per barrel.
Trumps presidency would appear to have been viewed positively by markets and during his election win and acceptance markets saw very little volatility. His Cabinet is taking shape and his objectives to cut taxes and ease regulatory red tape would appear to have been viewed well by markets.
Elsewhere the FED has predicted that there will be multiple interest rate rises in 2017, subject to the economy’s performance.
The EUR/USD could lose further ground this year if all of the above is fulfilled. The single currency secondly has a number of key political events including the French election in May and the German election to follow in autumn (latest October 22nd). These procedures will without doubt put pressure on the single currency in the coming months. This combined with the general sentiment that Mario Draghi is running out of options to stimulate the economy and stabilise growth.
Thirdly Prime minister, Theresa May has attested that ‘Brexit means Brexit and although implication might not be felt immediately the UK is a significant contributor to the EU. It may also set a precedent and other nations could also seek to leave.
With all of the above taken into consideration EUR/USD parity is by no stretch of the imagination impossible.
To conclude: How the USD performed in 2016
well in brief it recovered strongly from the fears surrounding the Chinese economy. Crude Prices Improved towards the end of the year assisting its assent. The economy remained stable during a very controversial elections which saw an outsider win the presidential race and data and indexes have reached record breaking levels. The currency would appear to have a lot to look forward to in 2017.
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