Research into the impact of political comments suggests that a single slip of the tongue could bring Europe to its knees. OK, so the economic fallout from a single comment may not be catastrophic. But, analysis of financial markets supports the idea that political soundbites can cause economic swings. With Brexit dominating political discourse since 2016, the idea that loose lips can sink an economy is now more significant than ever. Indeed, as politicians tiptoe around eggshells trying not to crack their economies, making the right noises has become crucial over the last three years.
Currency Pairs Hang on the Comments of World Leaders
Brought to you by DailyFX
Evidence for the significance of speech comes courtesy of a data supplied by DailyFX. Powered by investment firm IG, the report tracks the financial fortunes of currency pairs following a series of political comments. With EUR/USD being one of the most important forex currency pairs, much of the impact can be seen in these price charts. For example, when President of the European Commission Jean-Claude Juncker criticised Italy’s economic policy, the value of the Euro fell from 11800.0 to 11500.0 in a matter of days.
A similar thing happened when US President Donald Trump called the Federal Reserve “tight” and “crazy”. After giving his typically unfiltered opinions, the value of the Dollar against the Euro fell to 1.145 over the course of a month. In fact, if we stick with the walking steam of consciousness that is Donald Trump, we can see why political comments really do matter. In 2018, Trump said the US economy was the “greatest” in the world. Whether or not that’s true, results suggest that the US economy has grown. As reported by CNBC, US GDP has grown at a rate of 3%, while unemployment is at a 50-year low.
Political Posturing Can’t Ever Go Too Far
Naturally, it’s not all bluster and hyperbole that’s triggered economic growth in the US. Deregulation, lower taxes and more liberal attitudes towards businesses have all helped. However, Trump was crowing about the success of his policies long before they bore fruit. In essence, he’s the epitome of the phrase “conceive, believe, achieve”.
Of course, in reality, it’s not just Trump’s words that have an impact. As data supplied by DailyFX has shown, currencies hang on the words of world leaders. With that being true, a misjudged quote about Brexit by the wrong person could have cataclysmic effects. While a certain amount of political posturing is necessary, the reality is that leaders in the UK and the EU understand that words matter.
Therefore, among their carefully crafted spin, they’ve been cautious about overstepping the mark and saying too much one way or another. Indeed, with the fate of nations resting on their comments, no one wants their loose lips to sink ships. For those interested in financial markets and what really matters in politics, the latest research should provide some interesting food for thought as we move closer to Brexit D-day.
