Jobs data, inflation reports, and interest rate decisions can all affect exchange rates, but politics is currently an important reason for fluctuations at the moment.
While it is not the only reason, it has a huge presence in what we are currently seeing. In the United States things are never quiet politically, and the last week was no exception. Former Trump campaign chairman and officials have received indictments for a number of issues but most importantly conspiracy against the United States.
Why does this impact the US Dollar?
It means President Trumps time is taken up by the political issues rather than moving ahead with plans for the economy which include tax reforms. The tax reforms are important for the dollar as the new incentives could bring over $2 billion dollars currently held offshore back to the US.. This would have a very positive impact for the US dollar
Elsewhere, in Europe we have two major political issues occurring at the moment, one new and one old.
The old is Brexit, with negotiations dragging out, and the UK preparing for a hard Brexit. The Bank of England (actually the MPC to be precise) is expected to raise interest rates at their meeting on Thursday. This would be the first time in a DECADE that interest rates have been hiked. It is so widely expected, that if it does not happen we would likely see the sterling vs. shekel exchange rate fall as a result. If rates are hiked as expected, we will probably see a small jump in the exchange rate, but much of this has already been priced in to the rate.
In Europe, the new is Catalonia, as we are seeing a real mess in Spain, especially last week when with Catalonia claiming its independence from Spain, and then for Madrid retaking control of all local authorities. We saw the Euro hit the lowest we have seen against the Shekel for four months. It is still my opinion that the Euro is too strong and should not even be above 4.00 (which it has been since July).
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