As we look back at 2017, there were many geopolitical events that caused uncertainty in the currency markets, including European elections and the plunge of the Brazilian real in Q2 2017. But what will impact markets in the new year?
1. The Rise of Cryptocurrencies
In recent months, the global conversation about digital currencies has elevated with the increasing popularity of bitcoin and other cryptocurrencies.
This year, proposed legislation could change the definition of a financial institution to include digital currencies, which could change the way bitcoin, etherum and other cryptocurrencies work as they currently conceal account and transaction information.
Additionally, the United States and other countries are looking at implementing blockchain technologies to create their own digital currencies. Venezuela has made public plans to issue a cryptocurrency and Russia announced a plan to introduce a CryptoRuble.
The impact of country-adopted digital currencies is the increased speed of transactions, meaning corporations would have a difficult time keeping up with faster posting and clearing processes if they continue to use the same manual methods they do now.
2. U.S. Tax Reform
The passage of the United States’ $1.5 trillion tax reform plan is supposed to leave more money in corporate and consumer pockets, leading to increased spending that would hopefully stimulate the economy and incentivizing job creation. If the tax reform plan delivers those things this year, prices could be driven up within the U.S. economy and lead to a resurgence in dollar strength.
A strong dollar could bring back some of the issues President Trump sought to rid the country of early last year, including difficulty increasing exports and negative revenue impacts to U.S.-based multinationals’ earnings.
3. Brexit Proceedings
With the halfway mark for U.K.’s secession from the European Union culminating on March 19, 2017, the possibility of further British pound (GBP) volatility remains. Morgan Stanley predicts that the pound will be worth less than the euro in 2018; this shift would increase the cost of imports for British consumers and businesses at a time when many multinationals are uprooting headquarters and subsidiaries from the U.K. and moving them to more euro-centric cities.
To learn more about how these factors could impact global currency markets and what you can do to mitigate the possible FX risk from future digital currencies, U.S. tax reform and Brexit, read FiREapps CEO, Wolfgang Koester’s article in Treasury & Risk “Looking Forward: FX in 2018” and watch his recent segment on CNBC’s Squawk on the Street.
Contact FiREapps now to find out how we can help you optimize and automate your FX program to avoid negative currency impacts in the new year.