Reflections on 2016 and looking ahead - by John from Moneycor

[John from Moneycorp]

So as another year comes to a close, we reflect on what has been a tough period for the pound.

 

This year got off to a fairly turbulent start, with worries about China’s economy escalating again and fresh volatility in financial markets triggering concerns about a deepening crisis - bigger shocks were to come though.

 

The Pound weakened considerably in 2016 – it was the worst performing major currency.

 

Why?

 

Well, in short Brexit happened – in the build up to the EU Referendum vote the pound weakened - and also post Brexit the reaction has been negative for the pound due to the mass uncertainty which is currently present.

 

The shock and lack of planning for a leave victory has left many stunned, even to this day. The referendum was widely expected by the markets to be won by the ‘remain’ camp – as we know, a surprise leave vote created a major upset in Britain’s political establishment

 

Looking ahead to next year, Brexit will obviously be a big focus again – perhaps if we can get more clarity on the future plans for the UK then things may settle down for the pound. There are so many variables involved here though so this may prove unrealistic. Contrary to what some predicted prior to the Brexit vote, UK economic data released in recent months has shown the British economy so far proving resilient to the Brexit shock.

 

The Australian dollar

 

In 2017, the Australian dollar will be shaped by events in the US plus importantly the performance of the economy in Australia. The Australian economy surprised everyone in the third quarter of 2016 by shrinking 0.5% rather than rising by a similar amount as had been generally expected – was this just a blip or is slower economic growth to come in Australia? Of course, the performance on the economy in China, as always, will have an impact on Australia (Australia relies heavily on its exports of iron ore and natural gas to China).

 

Additionally, there is speculation Australia may cut interest rates in 2017. If the Reserve Bank of Australia (RBA) decides to cut rates then this could weaken the Aussie dollar.

 

Summary

 

The Pound to Australian Dollar exchange rate changed considerably in 2016. The highest level reached was in January 2016 – 2.094 – and the lowest level being 1.573 in October.

 

However, in recent weeks, GBP has been slightly stronger versus the Australian dollar.

 

One thing is for sure, these are particularly uncertain times and currencies are more volatile than ever. Worth noting that financial markets appear to be ending the year on a positive note even as further economic and political risks lie ahead in 2017.

 

I would like to wish everyone a Happy New Year and all the best for 2017.

 

Best wishes

 

John from moneycorp