The forex market is one that changes regularly and needs careful monitoring to get right. But with a vast amount of political uncertainty and a number of contributing factors such as inflation, interest rates and economic performance all contributing to fluctuations in exchange rates this can put many off of trading. However, with the new year providing a number of new opportunities for everyone as well as a brand new financial yeah, the question remains. Which of these factors will affect interest rates on the Forex market the most? In this article, we will be working to answer this question and provide you with insight into how 2020 is looking for those that want to trade.
The Brexit Fallout
One of the biggest issues that will affect Forex exchange rates the most in 2020 is the final outcome of Brexit. With three years of ongoing political uncertainty already causing the British economy to slow, there are many predicting that 2020 could be a turbulent year for the UK in terms of trade. Though the threat of a no-deal Brexit seems unlikely, it is not completely off the table. This, therefore, means that there is increased risk for the UK when it comes to trading on the international market, as well as the effects that this will have on the time.
If a no-deal Brexit comes into fruition, this could be highly damaging to the British economy as this will cut as much as 3% off of the growth of the British economy post-Brexit. Though it will take time for this to completely recover, the pound is set to recover gradually in 2020 allowing the British economy to begin to recover. Though this is all speculation at this point, we are certainly set to see a fluctuation in the number of people trading in the Forex Market.
Ongoing Political Uncertainty
In addition to the ongoing uncertainty surrounding Brexit, there is a wide range of other political issues that are leading to the Forex market being affected. With political uncertainty between the USA and China as well as the mounting tension between Russia and the rest of the world, this is affecting the Forex market as well as the economy of a number of the world’s leading superpowers. Though this has not had much of an effect on the global economy at this stage, there is reason to suggest that the ongoing political uncertainty could affect the price of fuel as well as electronics and other goods that are imported from these locations.
Though the trade war does not directly affect the Forex market it is causing fluctuations that can be damaging. This is causing the cost of money to fall even lower all across the globe with the Federal Open market Committee announcing a cut to rates by as much as 0.25%. This has since been echoed by the European Central Bank who has cut its deposit rate to an all-time low of -0.5%. Should this continue, this could lead to further political uncertainty as a result.
As the economic performance begins to slow, many begin to opt for trading and investing in other alternative finance options such as Gold and Cryptocurrencies. With many seeing investments online as a more secure option, there are a number of companies and individuals beginning to try their hand at trading forex online with bitcoin and other cryptocurrencies. Though there are risks when trading forex with a cryptocurrency, their decentralised nature means that their inflation rate is predictable. This makes it a far more popular investment for many that see this as a hedge against typical inflation that is bought on by ongoing politic turmoil.
When looking into interest rates, it is important to note that low-interest rates more commonly lead to a moment of economic growth. However, higher interest rates are typically what causes foreign investment as the increase for demand in the currency continues. However, with interest rates fluctuating for a number of different reasons, the interest rates are beginning to rise and fall which can lead to many seeing fluctuations in rankings and other elements. With the first rise in decades taking place in 2018, the governor of the Bank of England stated that there would be gradual increases in the coming years to help promote economic growth. However, this is set to rise to 1.2% in the early part of 2020 and reaching as high as 1.3% by the fourth quarter.
To balance the fine line between inflation and interest rates there is set to see an increase in the inflation rate from the last quarter of 2019 to 2020. This will see an increase from 1.84% to as much as 2.01% in the first quarter. This could be in part down to Brexit and the vast amount of uncertainty surrounding economic uncertainty when we eventually leave, this is set to Plato until is late as 2022. Though this is all speculation at this point, it is looking promising for the UK as the price of the GBP is set to recover and begin rising.
With this in mind, there are a number of elements that can affect exchange rates in 2020 and only time will tell as to the effect that this will have on a number of economies all over the globe. Will you choose to try your hand at forex trading as we head into 2020?