Conor Haugh: Don’t trust opinion polls

This has been a monumental year for the UK and the pound, which, in the wake of the Brexit vote, acted as a pressure valve for the UK economy.

Most forecasters expected that depreciation to continue, however, sterling looks set to finish the year at close to its strongest levels since the referendum result in June.

In an unexpected turn of events, the UK currency has been one of the strongest performing currencies over the past two months. This improvement has offered temporary relief for Irish exporters, however.

As they look forward to 2017, the path for sterling is anything but clear. The recent rebound in the pound has been most notable against the euro.

Following on from the Brexit result, the election of Donald Trump has raised questions regarding the upcoming French, German and Dutch elections.

In this turn of events, sterling has been a beneficiary of eurozone political instability. The question now is will Brexit-related uncertainty take hold again as exit negotiations heat up?

Or are we in a new more isolationist world where renegotiating trade deals has become the norm?

Overall, the pound still remains around 15% weaker on the year against its major trading partners, and with the activation of Article 50 scheduled for March 2017, it remains vulnerable to political and headline risks in 2017.

We have potentially reached a watershed moment in US and European economics and politics.

The efficacies of low-interest rate policies have been increasingly questioned by politicians on both sides of the Atlantic.

There’s a growing expectation that a transition from monetary to fiscal policy is now within sight.

The promise of easier US fiscal policy, under a Donald Trump presidency, has buoyed global equities and the dollar over the past six weeks, although this optimism may not last once the Trump administration begins the onerous task of turning words into deeds.

However, should the much-vaunted paradigm shift to fiscal accommodation occur, we could finally be witnessing the beginning of the end of low inflation and of low-interest rates. For that reason, 2017 could be a year of change in monetary policy.

In the UK, the latest round of asset purchases is scheduled to end in March. Recent speeches by Bank of England governor Mark Carney, amongst others, reveal little appetite for additional easing.

The ECB recently announced a reduction in the pace of monthly asset purchases, and the US Federal Reserve hiked interest rates for the second time this cycle.

The US central bank signalled it views another three hikes in rtaes in 2017 as appropriate.

Political developments will remain under sharp focus in 2017. In the US, there remains considerable uncertainty and Mr Trump’s first 100 days in office are likely to shape US domestic and foreign policy.

In the UK, prime minister Theresa May has signalled that the UK will trigger Article 50 before the end of March 2017, initiating exit negotiations with the EU.

It still remains to be seen whether access to the single market can be maintained. We are, therefore, likely to see continued volatility throughout the negotiation process between the EU and the UK. Europe faces the task of navigating up to four general elections in 2017, with France, Germany and the Netherlands all set to go to the polls.

The recent Italian referendum result increased the likelihood of early elections there too.

The one clear message from voting patterns in the UK referendum and the US election is that many voters are not happy, making the outcome of these elections hard to predict.

Politics has been a key driver of markets in 2016 and it has taught us a couple of lessons namely: Don’t store too much faith in electoral opinion polls and don’t bet against the outsider.

It will be important for investors to retain those lessons in 2017.

Conor Haugh is head of retail new business development at Bank of Ireland Global Markets.