2017 was a year defined by rising and falling tensions across the globe, leading to varying impacts on FX markets – sometimes to the extremes:
In the United States, political partisanship reached new heights as President Donald Trump’s first term began and policy changes were overshadowed by Robert Mueller’s special probe over Russia.
In Europe, the UK and the EU played a game of chicken over the details of Brexit, contributing to the weakest pace of wage growth in Britain in nearly 30 years.
In the Middle East, Mohammed bin Salman, the Crown Prince of Saudi Arabia, began a corruption purge and modernization effort that will redefine his country’s role in the global economy as the transition away from fossil fuels and towards electric automobiles accelerates.
In Asia, Kim Jung Un’s North Korea successfully tested another nuclear bomb as well as an ICBM capable of hitting any major city in the United States.
But 2017 was not all bad, and markets had good reasons to be optimistic:
In the United States, growth began to move above +3% as stock markets hit all-time highs and the unemployment rate fell to fresh lows since the Global Financial Crisis.
In Europe, voters pushed back against the far-right populist tide in France and Holland, with Marine Le Pen and Geerts Wilders – and their intentions to break apart the Euro – sent packing (for now; they’ll be back). The European Central Bank was able to exit part of its stimulus program as the debt crisis faded further into the background.
In Asia and Africa, emerging market economies started to power ahead, leading the IMF to upgrade their 2017 and 2018 global growth forecasts.
Going into 2018, many of these themes – both the good and the bad – will continue to evolve and take on new forms. Even as measures of volatility end 2017 heading towards their yearly lows, history tells us that this low volatility regime won’t last forever – particularly if the forthcoming political risks evolve in the least constructive ways possible.
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