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Developed countries’ currencies solely driven by politics: Strategist

The G10 currency market is driven solely by political events, one strategist told CNBC Friday.

Dominic Bunning, FX Strategist at HSBC said that whereas a range of events had impacted the performance of G10 currency pairs, now it is only politics.

"In G10, everything is driven by politics. We used to think about economics and cyclical stories and structural stories and balance of payments etc but now all we care about is politics," Bunning said.

He explained that if you have a strong political view then you make trading decisions on the basis of that.

"If you think the euro zone is going to break up then by all means sell the euro," Bunning said, while warning that he doesn't have a strong view on euro.

On sterling however, Bunning said the weakness is likely to continue. "We still think there is a strong weakness in sterling even though it is relatively lower because the political outlook in the UK is very challenging."

Illustration currencies
Kacper Pempel | Reuters

The G10 currencies are the U.S. dollar, the euro, the pound, the yen, the Swedish krona, the Norwegian krone, the Australian dollar, the New Zealand dollar, the Swiss franc and the Canadian dollar.

A number of these currencies have seen a lot of volatility since the start of the year owing to political uncertainties in their respective countries or on a global level. The biggest events this year have been the U.K.'s vote to leave the European Union and the U.S. presidential elections. While sterling is down more than 16 percent since the Brexit vote on June 23, the euro has been on its worst losing streak since the currency arrived in 1999.

The dollar, meanwhile, has been seeing some strength, rising to a 14-year high against a basket of currencies on the growing perception that the economic policies of U.S. President-elect Donald Trump will push up consumer prices. While traders are growing more bullish on the dollar, HSBC's Bunning warned that it is not great for emerging market currencies.

"You need to be selective in terms of your currency choices. I don't think it's a dollar bull run against everything but I do think if you look at the outlook for emerging market currencies, particularly the high-yield currencies at the moment, it is very hard to have a positive currency view."

Soaring dollar has hit assets across emerging markets, especially after Federal Reserve chief Janet Yellen said a rate hike could be "relatively soon."

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