British Pound 3.84%
It's been a classic comeback story for the pound this year. After spending three months in free-fall against the dollar, spiralling lower from 1.33 – 1.20 (which actually made it the wort performing currency of the year at the time) the pound has since made an impressive recovery back above the 1.30 level.
Over the majority of the year, the Sterling was haunted by Brexit uncertainty, as a lack of clarity on the issue and very volatile negotiations kept the market in the dark. Brexit uncertainty soon fed into domestic political uncertainty as Theresa May abandoned her post as PM, following grave difficulty with Brexit negotiations and a loss of confidence by her own party and across the political divide. Along with the economic pressure caused by this uncertainty, the UK was also suffering economic damage as a result of the ballooning US-Sino trade war which saw world growth crashing lower.
With the initial March 29th 2019 Brexit date having first been delayed until October 31st and then finally until January 31st 2020, investors had an incredibly fraught year as the risks of a no deal Brexit dragged on and at times grew much stronger.
With a host of key UK data points trending lower over the year and with the Bank of England sounding increasingly cautious, investor sentiment was particularly heavy into the summer as the manufacturing sector in particular sunk to ten year lows. The BOE was soon highlighting the potential need for a rate cut not only in the aftermath of a no deal Brexit but also maybe even ahead of Brexit altogether as a result of the damage from ongoing uncertainty.
However, political developments over the final 4 months of the year saw a sharp reversal in sentiment. Once it was confirmed that Brexit was to be postponed until January 31st, the risks of a no deal Brexit were seen moving firmly lower. Soon after, the attention shifted to the UK general elections which were announced for December 14th. With the Conservative party favoured to win, the most expected outcome was that the UK would leave the EU under PM Johnson’s deal. As the economic disaster of a no deal Brexit would be avoided in this scenario, the Pound continued to rally and soared above the 1.30 mark as the election confirmed a win for Johnson with the Conservative party gaining a majority In parliament. Attention into 2020 is now on the trade deal talks between the UK and the EU.
Japanese Yen 2.70%
The Japanese Yen had a bumper year over 2019 also. While the majority of the drive higher in the Yen was less a result of improved domestic expectations, and more as a result of a strong flight-to-safety trade, the rally saw the Yen taking second place nonetheless.
The main driver of the safe-haven rally in the Yen was of course the collapse in US-Sino trade talks which took place in May and led to a dramatic escalation in the trade war. With both the US and China announcing fresh round of tariffs as well as other incidents such as the Canadian arrest of a Chinese tech executive, the US adding Huawei to the Banned Entities list and China threatening to restrict rare earths exports, investors were understandably concerned.
Global data soon started to reflect the dismal outlook for the economy and world trade took a massive hit. With global manufacturing readings plummeting lower throughout summer, the Japanese Yen continued to see huge safe haven inflows which kept the currency supported.
Interestingly, despite the downturn the Bank of Japan maintained a resilient tone over the year, confident that the negative impact of the US-Sino trade war were not impacting the domestic economy. Heading into the turn of the year, many analysts and market commentators now envisage that the BOJ will start to move away from its stimulus program and towards tightening, which should see the Yen supported further.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!