Posted by Rewan Tremethick on November 9th, 2016.
Many analysts had claimed it wouldn’t happen. The polls suggested Clinton was by far the most likely victor, with some experts predicting she would secure double the Electoral College seats of her Republican rival.
But the market fear that the US Election would turn into another ‘Brexit’ moment was slowly realised last night. Donald Trump has claimed victory in an historic campaign wrought with twists, scandals and controversy.
Unsurprisingly, the markets have reacted strongly to the news. Here’s a look at the impact of Donald Trump’s election victory on exchange rates.
The response from the currency markets has largely been less severe than analysts had initially predicted. This is because Trump gave a surprisingly considered and humble victory speech, imploring the American people to unite and work together, stating;
‘Now it’s time for America to bind the wounds of division… I says it is time for us to come together as one united people.
For those who have chosen not to support me… I’m reaching out to you for your guidance and your help so that we can work together to unify our great country.’
The US Dollar has collapsed against currencies that are currently considered comparatively safe. This includes the Pound (GBP), Euro (EUR), Swiss Franc (CHF) and Japanese Yen (JPY).
While the Pound may not seem like it is in a particularly strong place right now, investors want Sterling in order to buy UK government bonds. Known as gilts, these bonds are still considered a very secure investment thanks to the faith the markets have in the financial health of the UK government. The Euro, again not actually a ‘safe-haven’ currency, is seeing strong demand partly due to appetite for bonds.
While investors may not be particularly inclined to buy the US Dollar today, they are less inclined to hold on to high-risk assets such as the Australian Dollar (AUD), New Zealand Dollar (NZD) and the Canadian Dollar (CAD). These assets tend to reflect developments in the volatile commodity markets, as well as forex market sentiment. USD is therefore registering strong gains as these currencies are sold off.
Considering no one is quite sure how extreme Donald Trump’s economic policies are going to be – he did claim he would build a wall between the US and Mexico for starters – markets are thinking that now may not be the best time to risk their capital on assets like the Australian Dollar.
Given that the market reaction seems far less extreme than many analysts had predicted, forex volatility could quickly subside. There are still a lot of uncertainties surrounding the fate of the US that are likely to pressure US Dollar exchange rates lower, so the ‘Greenback’ may find itself on a weaker footing for some time, even if the current sell-off ends fairly soon.
The first 100 days of any Presidency are key; these could be the most vital 100 days the world has seen for some time.
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