The euro is predicted by many to be subject a considerable degree of volatility in the coming year, as election season in many of the continents major nations begins to gather pace.
With many of Europe’s establishment candidates facing notable challenges from populist candidates, the upcoming election season promises to instil significant volatility in the currency, which demonstrated its susceptibility to political volatility with Britain’s exit from the European Union in 2016.
On June 24 2016, the day directly subsequent to the hosting of Britain’s referendum regarding membership of the European Union, the euro fell from its perch at 1.14242 against the U.S. dollar, to a low of 1.09119 in a single trading session. The enormous loss of value was a demonstration indeed of the implications political volatility can have on the currency.
It is also a vivid reminder of how the currency could shift during what promises to be a tumultuous political scene on the continent in 2017.
With German and French establishment politicians facing opposition from populist candidates, who have gained considerable traction over the past few months, in the wake of various terror attacks and a significant public disapproval of policies regarding immigration and the handling of the refugee crisis, the euro may be subject volatility similar to that experienced subsequent to Britain’s exit from the Union, although not as considerable due to the significance of Brexit.
However, the inauguration of Donald Trump on January 20 promises a fall of the U.S. dollar against many major currencies, the euro included. Thus, the net implications of political volatility in regard to both constituents of the tumultuous EUR/USD ration may in effect balance one another out, or, conversely, combine to generate an even greater degree of currency turmoil, particularly when the direction of economic manoeuvring is assumed in earnest by the new U.S. administration – significant spending and an protectionist stance, particularly in regard to manufacturing likely to cause dollar increases, adding to volatility if the euro decreases simultaneously during the year.
Whatever the true implications of political volatility in 2017, there is likely to be a trend of considerable volatility in most currency ratios.
Chart from: https://www.dailyfx.com/eur-usd
Showing daily fluctuations in the price of the euro against the U.S. dollar, with the significant drop apparent being the reaction to Britain’s exit form the E.U.