Sentiment on the Forex Market - the US Election, Brexit and the Fed

The past year was one of considerable volatility on financial markets. Surprise outcomes in the UK referendum on leaving the European Union and the presidential election in the United States contributed to that volatile trading in foreign exchange,commodities and global stocks. In 2017 these factors and the pace of interest rate hikes by the US Federal Reserve will have an important impact on market sentiment.

How these events and policy decisions affect the foreign exchange market will be the focus of this article. The intent is also to examine how they might impact the trading of key currencies in the year ahead.

The victory of the "leave" camp in the UK referendum in June and the election of political outsider Donald Trump in the US presidential vote in November showed the depth of dissatisfaction with the status quo in both countries. Both votes were seen as a popular backlash against the perceived interests and influence of "elites." Both produced considerable uncertainty in terms of policies and capital flows.

In the UK,the so-called Brexit vote resulted in an immediate 12% slump in the pound sterling against the greenback amid a broader flight to safe haven assets. Most yen cross rates dropped significantly as the yen appreciated. The dollar/yen (USD/JPY) fell to a three-year low and briefly broke below the 100 level. Gold prices advanced smartly,topping US$1,355 an ounce,a high for the year at the time.