Trump, China and Brexit top list of geopolitical concerns for FX markets

TradeTech FX Europe panellists highlight escalating trade war between the US and China as biggest risk for global FX markets.

The White House administration of Donald Trump, the rise of China and the uncertainty of Brexit have been highlighted as the biggest geopolitical topics of concern to the global FX markets by panellists at the TradeTech FX Europe conference.

Unsurprisingly, the leadership of Donald Trump as President of the US was of most concern for FX market participants according to speakers, due to his erratic and unpredictable nature, particularly in relation to China.

“I see it as Trump playing this game of chicken with China and we have seen him do that before with Korea, but the difference is that they have been invited to the White House,” said Thomas Wind, executive director, head of foreign exchange and trading, at Woodman Asset Management. “He will not want to lose any face in this game. He can only be in power for the next six years maximum and China is a bigger monster than that.”  

Wind also commented that he believed Trump would not be interested in “playing the long game” with China, as it would be extremely hard for the US to come out on top of a trade war with its Asian counterpart.

The growth of the Chinese economy was top of the agenda for other players though, particularly when it comes to those from the US where the brunt of the argument between the two nations is playing out and how such geopolitical events will often cause knock-on effects for the markets.

David Nowakowski, multi-asset strategist at Aviva, explained the rise of China as a “more powerful competitor” to the US was a “bigger strategic issue”, while the ongoing negotiations between the US and North Korea were more of a play to realise the nation’s goals in the region.

Nowakowski also referenced the Turkish currency crisis, Pakistan debt and the interference of Russia within Eastern Europe as significant factors which can affect currency markets.

“When we think about geopolitics there’s a lot to keep on the radar. These things connect to one another and can spill over things like mass immigration or governmental collapse,” he said. “For example, when Russia invaded Ukraine there were sanctions and both of those currencies had around 50% moves.”

In Europe the ongoing confusion surrounding the UK’s departure from the European Union was highlighted, although Nigel Rogers founding partner and head of trading at Adrian Lee & Partners, was confident that there would be positive movement on Brexit soon.

“I think things could be passed their worst,” he said. “It seems like they will try to come to some agreement they can hold up, hand-in-hand, by the end of the year to say ‘we can agree’. It could all change in the next two years while they are finessing it, but I think they will want the markets calm.”