The Events That Shook Financial Markets in 2017

What happened in financial markets in 2017?

2017 mixed politics, central banks and a booming new asset. This look back walks through the year in order. None of the prices here are current.

One idea runs through the whole year. The size, and even the direction, of a market move often depended less on the news itself than on what traders expected beforehand.

Why did the euro rise, then fall, around France's election?

In early 2017, many investors worried about France's presidential election. Marine Le Pen, one of the leading candidates, wanted France to leave the euro. A result like that could have shaken the currency.

In the first round on 23 April, the pro-EU candidate Emmanuel Macron came first and Le Pen came second. Polls said Macron would win the final vote. When trading restarted the next day, the euro jumped about 2% against the US dollar, as investors felt relief. It was still up more than 1% later that day.

On 7 May, Macron won the final vote. The Élysée records his election that day and his handover on 14 May. This time, the euro touched a six-month high, then fell about 0.6% that day.

Why? The win was already expected, or priced in. Traders had bought euros before the vote, and many took their profits after it.

Why did the pound fall when UK rates went up?

A central bank sets the main interest rate for a country or region. Higher rates can attract savers to a currency, so many people expect a rate rise to push the currency up. 2017 showed it is not that simple.

On 2 November, the Bank of England raised its rate from 0.25% to 0.5%, by a vote of 7 to 2. It was its first rise in more than 10 years. Yet the pound fell nearly 1% against the dollar, CNBC reported. The rise was expected, and the bank said any further rises would be gradual and limited.

The US was similar. On 13 December, the Federal Reserve raised its target range to 1.25% to 1.5%, and the dollar dipped, as the Fed again pointed to low inflation.

In October, the European Central Bank kept its rates the same. It said it would buy fewer bonds each month from January 2018, but keep buying for longer. The euro fell, as traders read this as low rates for longer.

The lesson: markets react to the surprise, and to what a bank says about the future, not just to the rate itself.

What did Article 50 change?

On 29 March 2017, the UK government sent a letter to the EU that triggered Article 50, the legal process for leaving. It gave two years to agree terms, unless that time was extended.

This was a different event from the June 2016 vote to leave, and from the day the UK actually left, on 31 January 2020. A story that treats all three as one event squeezes years of uncertainty into one headline.

The date of the letter was known in advance. It mattered a lot for politics, but that did not make it an easy trade. Many questions about trade deals and timing were still open.

What happened to Bitcoin in 2017?

Bitcoin was the year's wildest story. Its price stayed under $1,150 until late February 2017. By mid-December, it had reached about $19,500, by one measure.

Then a new kind of contract arrived. A futures contract is an agreement to buy or sell something at a set price on a future date. CME opened Bitcoin futures on the evening of Sunday 17 December, US time. Their official first trade date was 18 December.

According to economists at the Federal Reserve Bank of San Francisco, Bitcoin's price peaked on 17 December, the day CME futures started trading. Four months later, it still had not returned to that peak. Their explanation: before futures, people who expected a fall had no easy way to bet on it. Futures gave them one. That is an explanation, not proof.

A futures contract is also not the same as owning Bitcoin. A big exchange listing it did not make Bitcoin's price fair or safe. See Bitcoin's biggest crashes for more.

How can you study a past event without hindsight?

Hindsight makes every past move look obvious. To learn from history, try to see each event the way people saw it at the time.

1. Write your question before you open a price chart.
2. Pick the asset, the time zone and the exact time window.
3. Find out what people expected beforehand, for example from polls or forecasts at the time.
4. Check for other news in the same window.

Say a price rose from 100 to 103 in a week with a big announcement. That is a 3% rise. It does not prove the announcement caused all of it.

To go further, learn what moves exchange rates, or read about five famous traders and the events that made their names.