US Dollar Weakens Further Ahead of FOMC Meeting, USDJPY Nears Multi-Week Low

The recent US election has resulted in a spike in forex trading across the world and the resulting impact of politics on global financial markets is still an open question. Will the turbulence in the US economy lead to increased trade barriers between North America and Asia, causing a sharp decline in Asian trade? Or will the countries of Europe and Japan remain united and continue to enjoy years of healthy trade while the US continues to marginalize them with trade deals that put its own interests first?

One thing is for certain. The political turbulence in the US is going to have a significant impact on global trade. The consequences could last a long time, or they may unfold now. But whatever the eventual outcome is, it is certain that international trade will be affected. All the major players are watching the US election closely and are scrambling to figure out what the new policy initiatives might mean for them. There is a very good chance that some form of trade war will break out as the outcome of this imbroglio.

Will bilateral economic deals to be changed for the better or worse? Is the Trump administration going to increase tariffs on imports from China, India, and other Asian nations? Will bilateral deals with European Union nations to be affected by this newfound sense of European primacy? What of the European Central Bank’s reaction to the Trump election win? Will the Germans change their long-standing policy of keeping interest rates low to attract more European debt into their country?

The question of how to trade the impact of politics on global financial markets has been bugging global trade specialists for quite some time now. The answer is not simple. The impact of politics on global trade is actually a two-fold response to this question. On one hand, there is a fundamental shift taking place in the way international trade is done. On the other hand, there are also changes in the manner in which trade negotiations are being conducted between member nation states of the World Trade Organization (WTO).

What you see is a political decision made by a major economic power to shift its focus from domestic growth to maintaining its global political and economic strength. There is no doubt that a lot of people are angry about this, and this is why trade deals seem to take a longer period of time to finalize than usual. The longer it takes, the more the political fallout affects your ability to access the markets. The following will identify some of the most significant political factors behind this dilemma.

First, the US is not recession-proof. The onset of the Great Recession did not have an immediate negative impact on the US economy. In fact, there were many instances where the US was actually able to weather the storm and emerge stronger than before. However, the impact of this economic weakening can be seen in the level of uncertainty that dominates the trading scenario.

Second, the Asian Tigers – India, China, South Korea and Taiwan – have become more open to bilateral trade deals. This has not had any direct impact on the overall US economic performance. But it has made the political decision to go for a more open trading environment a little harder to stomach. Third, there is a growing concern about the impact of environmental policies on global economic growth. And finally, there is the looming threat of the European Union’s proposal to impose a common trade set up for its currency unions.

These four factors combine to make a very difficult situation for global traders looking for reliable answers as to how to trade the impact of politics on global financial markets. The political fallout will affect your access to the global markets regardless of whether you trade your products, services or even money. The more countries to follow suite with similar protectionist policies, the more global economic activity will be limited or even curtailed altogether. At the same time, other countries will move ahead with their own protectionist policies.

Author: admin