Currency trading is an interesting game because, unlike equities trading for example, instead of just trading one instrument we are trading the relationship between two instruments. Therefore, while one currency is going up another must be going down. Read on to take a look at the best and worst performing currencies of 2018 and learn what went so right, or so wrong, for the chosen few.
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The US Dollar has a had a solid year over 2018 with US economic performance going from strength to strength and the Fed steadily raising rates by 1% over the course of four increases. On the domestic front, data has gathered momentum steadily over the year with unemployment falling, wage growth rising, and GDP rising strongly also.
The economy has been helped over the year by the fiscal boost from Trump’s tax reforms activated earlier in the year, as well as the strong rally in oil prices over the first half of the year which helped boost inflation (that remains above target now.)
The US Dollar has also benefitted from the trade war waged by Trump against China over the year with investors preferring USD to benefit from the dispute over China. Furthermore, USD has seen strong safe-haven inflow this year meaning it has also benefitted from the investor uncertainty linked to the ongoing trade dispute.
Despite the BOJ remaining committed to its easing program, the Japanese Yen has also had a strong year over 2018. Support from JPY has largely come from safe-haven inflow linked to ongoing global risks from the US/China trade war, Brexit and more recently the slide in oil and equities prices.
The BOJ has been resolute in sticking to its easing bias over the year despite sporadic rumors regarding a potential shift in policy. Indeed, the bank even responded to criticism from a university professor who released a research paper on the harmful effects of the bank’s negative rates policy.
The Australian Dollar has had an incredibly tough time over 2018. While at the start of the year the market was pondering a potential shift in policy from the RBA, In line with the general hawkish shift among many other G10 central banks, weak domestic data and deteriorating global conditions kept the bank on hold over the year and turned sentient sharply bearish towards AUD.
Although labor market conditions have tightened over the year, weak wage growth, high levels of household debt and low levels of household income alongside falling house prices have all contributed to a challenging domestic environment for the RBA. The bank has therefore been unable to raise rates for fear of negatively impacting a large percentage of the economy.
In addition to this, AUD has been under pressure from the ongoing trade war between the US and China. As China’s largest trading partner, Australia is often used as a proxy for trading China due to the correlation between the two economies. With Chinese activity having slowed down over the year due to elevated levels of uncertainty and subdued demand, the Australian economy has also come under pressure which, in turn, has held AUD down.
You could only have escaped the woeful tale of the British Pound this year if you took one of Richard Branson’s early test flights to Mars. The ongoing Brexit saga between the UK and the EU has weighed heavily on GBP over the year. Despite positive momentum in the domestic economy over the first half of the year, leading to the BOE raising rates for just the second time in a decade, the increasing fear of the UK leaving the EU without a deal has taken a heavy toll on GBP trading.
Brexit negotiations have been incredibly fraught, and the UK PM has also come under heavy political attack from within her own camp leading to a vote of no confidence for her. While May won the eventual secret ballot, she is yet to put her Brexit deal before parliament and many are worried the deal will be turned down and the UK will be forced to leave the EU without a deal.
The BOE, while it stated its intentions to continue with a path of policy normalization, has highlighted the risks around Brexit and the potential need for a rate cut in the event of a no deal Brexit to backstop the economy.
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