Year In Review: What Shaped FX In 2019

2019 has been a busy year for the financial markets. The biggest driving forces were trade war, global easing, Brexit and record-breaking moves in US stocks. Hong Kong dissolved into political chaos and President Trump became the third President in the history of the United States to be impeached by the House. One would expect that these political developments would have made investors nervous and drive stocks lower but all of the major indices across the globe enjoyed gains. In the US, the Dow Jones Industrial Average rose more than 20%, the S&P 500 is up nearly 30%, the DAX is up 25%, FTSE is up more than 12%, the Nikkei gained 19% and despite all of China’s troubles, the Shanghai Composite rose 20%.

However, the consistency in equities was not seen in currencies.2019 was a good year for the Canadian dollar and sterling and a challenging one for the euro. All other major currencies changed little in value versus the greenback. The first 9 months of the year was actually kind to the dollar. There was a lot of choppiness in the greenback but the overall trajectory of the Dollar index was higher. However, at the end of September into early October, DXY peaked and trended lower into year-end. There were 2 primary drivers for the greenback this year – the trade war and the Fed.

The trade war has been good for the dollar for no reason other than the fact that tariffs are more painful for the rest of the world than for the US so the dollar benefited from safe-haven flows. China ended the year with higher tariffs. In May 2019, the US increased tariffs from 10% to 25% on USD$200B worth of Chinese goods. China responded with their own increased tariffs on US$60 billion worth of goods. Then on September 1st, the US implemented higher tariffs on another USD$125B worth of Chinese imports. In October the US announced a Phase 1 deal that would delay tariff increases that were set to go into effect in October but the US and China oscillated between progress and setback before reaching a trade truce that delayed the December tariffs. A signing ceremony is expected in the New Year but when it comes to US-China trade relations until the ink meets the paper, attitudes could change on a dime.

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