The start of the New Year is a time for resolutions and big plans. In people’s personal lives, these often involve things like the gym and diets and don’t make it beyond the end of January. But when it comes to making a successful living, it is all about what you can do to advance your current position.
For a Forex Trader, this time can be perfect to plan ahead and assess what kind of factors might create opportunities for successful trades. Which national economies are looking in good shape and set to do well? Who is doing badly? Where is there lots of uncertainty? What political events might impact the value of currencies?
In making these assessments, there are three categories of events you can consider. To begin with, there are the ongoing; situations that are currently in place showing little sign of changing anytime soon and may therefore be very relevant to your strategy in 2024, enabling you to make the best use of your trading funds.
Geopolitical events may come into this category, such as the Ukraine War, where much movement is unlikely during the frigid winter months, although the military and political situation may change later in the year, either due to spring offensives or wider decisions elsewhere, such as a lessening of US support for Ukraine under a second Trump term.
It might also be expected that the Israel-Gaza conflict will drag on all year, given this is the stated aim of the Israeli government.
However, it is worth noting that nobody had factored such a war in last year before October 7th (despite some unfounded allegations of last-minute insider trading on stock and futures markets), which offers a precautionary tale to show just how situations in significant areas of the world can change very suddenly.
The Economic Status Quo
Economic situations are another area worth watching. If, for instance, a country has low inflation and low interest rates, such as Japan, that is a clear sign that its currency value and the interest rate differential with other currencies are likely to remain significant, even if the paired currency sees its rate fluctuate. This is good news for currency pairing strategies.
This can also be the case if rates are higher but have been held for a while, with the UK being an example of a country that may now be in a holding pattern after 14 successive rate rises. Three successive votes by the Monetary Policy Committee (MPC) to hold the base rate have come at a time when inflation is falling but still well above target.
While it may be possible that the UK Consumer Price Index target inflation rate of two per cent will be reached sooner than the MPC expects (late 2025), it seems that until it does reach that level it is unlikely to be cut, while the direction inflation is clearly now going suggests further increases would not be warranted.
Such projections are tentative, of course, so while you can plan ahead with likely and central projections in mind, it is important to be ready to be flexible.
For instance, if the UK turns out to have entered a mild recession and negative growth continues in the opening quarter of 2024, that kind of game-changing scenario could prompt the MPC to move sooner.
A Very Big Political year
A second category of events concerns the political calendar. Elections are among the most significant events that will happen in 2024, both because there will be a lot of them and which countries they will take place in.
Globally, the most significant will inevitably be the Presidential Election in the United States. As things stand, this looks most likely to be a repeat of 2020, only with Joe Biden as incumbent and Donald Trump seeking to regain office.
On the one hand, this may mean we are dealing with some known quantities and economic policies can be reasonably easy to predict. However, some other factors could be destabilising and potentially dangerous.
Firstly, given events last time round, there will be fears of the result being disputed, potentially going to court, and perhaps even further civil disobedience as bad, or worse, than the Capitol riots seen three years ago, all of which could be highly destabilising.
Secondly, a change of presidency could have various implications, including the impact of new economic policies on the value of the dollar, while a third issue is the way geopolitical situations could change under a Republican presidency, including widespread concerns that this could mean military aid to Ukraine being curbed, tilting the war Putin’s way.
Change In Britain?
The UK is also expected to hold a general election, although technically it can take place in January 2025. That there will be one this year is therefore an overwhelming probability, although this must be balanced with the one uncertainty, which is when the government chooses to hold it.
To highlight the potential fluidity of this situation, the recent announcement that the Budget will take place on March 6th (a date well worth noting for its potential impact on Sterling) prompted a reaction from opposition politicians that a spring election (most likely coinciding with the May local elections) was nailed on.
However, soon after shadow cabinet minister Emily Thornberry called the prospect of a May vote “The worst kept secret in Westminster,” prime minister Rishi Sunak said his “working assumption” is that the election will be held in the second half of this year. Polling guru Sir John Curtice has predicted November 14th as a likely date.
Whether or not this timing matters much depends on various circumstances. At present, the Labour Party has had a long-established hefty lead in the polls, which would suggest they are on course for a very substantial victory if not a landslide.
At the same time, made cautious by the rejection of Jeremy Corbyn’s radical left-wing policies in the past two elections, Labour are likely to avoid any drastic economic policy changes and while their programme will differ in a number of ways, they will not be attempting anything likely to make the markets too jumpy.
This is in contrast with the 2017 and 2019 elections, when shadow chancellor John McDonnell said the party had ‘war-gamed’ a run on the pound in the event of a Labour victory.
Other significant questions include whether the Conservative government can make up some ground in the polls. If this happens early in 2024, a spring poll may be back on the table. If it happens at all, that may create more uncertainty over the outcome of the election. Markets don’t like uncertainty, so this could impact the pound until the result is known.
A clear result in the election will create lots of certainty, whereas a hung parliament or a small majority will have the reverse effects, particularly if the consequence is that another election will soon follow, like in 1951, 1966 and October 1974.
Trouble Brewing In Europe?
There are plenty more elections to look out for around the world, not all of which are for national governments and presidents.
For example, the European Parliament elections may not directly impact the UK anymore, but if these polls see a lot of radical parties doing well, not least those that want to see their own version of Brexit, this will create much uncertainty over the future of the EU as a project.
If this happens, it could have further political and economic implications, as it may also herald further successes for hitherto fringe parties of the left and right in elections coming up next year, such as the German federal election. The victory of Geert Wilders and his PVV party in the Netherlands last year shows this prospect has to be taken seriously.
What this means is that elections represent varying levels of uncertainty, with different implications, but some elements of them can be known, such as the timing of at least some polls, even if this does not apply in the UK since the abolition of the short-lived Fixed Term Parliaments Act.
Beware The Unknown
Apart from current events and upcoming political happenings, the third category of events is the unexpected.
Pre-ordained or predictable events are not going to be the only factors shaping the relative values of different currencies around the globe. The fact remains that big events, from wars and pandemics to natural disasters, can have major and sudden impacts that can upend or redefine strategies.
Since nobody knows what these will be and when, you need to be vigilant and ready to take action. Often, this can be as much about how to respond if an event does not actually occur as if it does; traders using the South Korean won may be among those in this situation if the latest sabre-rattling and threats from the North prove an empty threat once again.
However, at the same time, you may find a myriad of smaller factors changing from day to day, which generate minor shifts in currency values, and could be just as important, creating opportunities for you to make small gains day by day with the right responses. Your best strategy in 2024 may not necessarily revolve around the events that will make the headlines.