After months of debates and discourse, the United Kingdom is finally set to enter into the muddled world of Brexit negotiations. While the formal outcome is still not expected for some time, many traders are already keeping on eye focused upon the potential impact of this deal in reference to the United States markets. Although there are no certainties within the world of financial trading, can we make any well-informed predictions? Let us take a quick look at what some of the experts have to say.
A Continued Spike in Safe Haven Assets
It can be argued that this is the most universal observation. Immediately after the initial Brexit vote emerged, American investors began to place their assets into safe havens such as treasuries, gold and the Japanese yen. While this exodus was relatively short lived once the markets settled down, we should still expect to see a slight influx back towards such assets in the coming weeks. As a result, the values of commodities such as gold are set to remain bullish.
Short-Term Currency Fluctuations
The pound has remained on rather shaky financial ground in recent months in relation to its performance against the dollar and the euro. The latest news seems to hint that it may once again begin to lose value when compared to the dollar in particular. This could serve to benefit the United States economy as international investors begin to reallocate their holdings into dollar-backed assets (and thus take advantage of exchange rates). This may also make it much easier for Americans to invest in UK-based opportunities; at least from a short-term point of view.
Another Delay in Interest Rate Hikes?
Investors have been anticipating an interest rate increase by the Federal Reserve for the past 18 months. Why has this not yet come to pass? The main reason is that the Brexit has caused a good deal of economic uncertainty throughout the global marketplace. Thus, the Fed has chosen to place a cap on interest rates until more solid ground emerges. The primary benefit here is that lower interest rates leave plenty of room for liquidity within the United States markets and this could cause them to rise even higher. This is arguably one of the reasons why Colin Cieszynski at CMC Markets states that US index futures are set to increase. The real question is how long these rates will remain at sub-par levels.
Perhaps Business as Usual
Many experts are now observing that the overall impact of the Brexit upon the United States markets will be less pronounced than initially feared. Most forecasters are not predicting any major changes from a medium-term point of view. The one thing to keep in mind is that only 15 per cent of the United States GDP is associated with international trade. So, any Brexit negotiations are unlikely to affect the majority of American businesses. The “America First” campaign enacted by the Trump administration seems to have further allayed the fears of many investors. The United States may actually weather the storm far better than its British counterparts.
As negotiations continue to progress, it will be interesting to see how foreign and domestic markets react. These movements could very well affect future political decisions around the world.
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AFP
