The consensus in the US$ 5.1 trillion a day currency market could not have been more wrong.
The widely held view was that a victory by US Republican presidential candidate Donald Trump would spur a US dollar rout as investors anticipated uncertainty and financial market volatility that would cause the US Federal Reserve to delay interest-rate increases. Yet the real-estate magnate’s upset win triggered the opposite reaction — a bonanza for greenback bulls and one of the most stunning rallies since the financial crisis.
Scott Petruska, a three-decade veteran of the foreign-exchange industry, counts himself among those who did not anticipate the Republican sweep of Congress that accompanied Trump’s triumph. Investors are betting the power of the executive and legislative branches combined will open the fiscal tap, boosting economic growth and spurring faster inflation. The net result of that scenario is that expectations are mounting for a higher Fed rate target, boosting the appeal of holding US dollars.
“It probably ranks as one of the biggest surprises in the currency market in the past 30 years,” said Petruska, a Massachusetts-based senior adviser at SVB Financial Group. “We have a Republican president and a Republican Congress — things may actually happen after eight years of gridlock in Washington.”
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, surged almost 2.8 percent this week, the most since September 2011. Gains were steepest against emerging-market currencies, including a 9.6 percent appreciation against the Mexican peso.
The most accurate forecasters in a recent Bloomberg survey had predicted more than a 5 percent slump in the US dollar against the yen should Trump win. On election night, the greenback tumbled as much as 3.8 percent, then soared as investors turned their focus to Trump policies seen as spurring growth and inflation.
His pledges include spending from about US$500 billion to US$1 trillion over a decade on roads, bridges and airports. He said in his victory speech that he aims to make US infrastructure “second to none,” while putting millions of people to work and doubling economic growth.
Traders see an 84 percent chance the Fed will increase rates at its meeting next month, up from 76 percent at the end of last week, according to data compiled by Bloomberg based on futures.
To JPMorgan Chase & Co, the world’s second-biggest currency trader, some of the president-elect’s policies may serve to drive the US dollar even higher against emerging-market counterparts.
Trump has been relatively silent in recent days regarding the protectionist trade measures that helped him defeat Democrat Hillary Rodham Clinton.
Yet that reprieve may not last, said John Normand, JPMorgan’s head of foreign-exchange, commodities and international rates research.
“Trade may be dormant for no more than a couple of months, and motivates our recommendations” to be bullish on the US dollar against Asian currencies like the South Korean won, Normand said in a report on Thursday.
TAIWAN
In Taipei, the greenback rose against the New Taiwan dollar on Friday, gaining 0.7 percent from Thursday and 1 percent from a week ago to NT$31.801.
Dealers attributed the fall to foreign investors moving their funds out of the region, sparking selling in the local currency.
Massive foreign institutional selling in local equities added downward pressure on the NT dollar, they said.
EURO
The euro had its worst week in a year as Trump’s win stirred up investor concern over populist outcomes in European votes.
Markets in the euro region potentially have a turbulent period ahead with an Italian constitutional referendum next month, and elections in France, Germany and the Netherlands next year that may kick out ruling parties or coalitions and overturn economic policies.
That has led to a flight to the Swiss franc as a safe haven, causing the currency to rise to the highest versus the euro since June on Friday. The single currency dropped 2.6 percent against the US dollar since the previous week.
The euro weakened 0.4 percent to US$1.0855 as of 5pm in New York, the biggest weekly loss since October last year.
The Swiss franc appreciated 0.3 percent to 1.07225 per euro and touched 1.07063, its strongest since June.
POUND
Sterling climbed against all of its 31 major peers this week as investors reassessed the outlook for inflation and the rise of populist movements in Europe after Trump’s victory.
Sterling climbed 0.7 percent this week to US$1.2606 as of 5:07pm in London on Friday, having jumped 2.7 percent the previous week. It strengthened 3.5 percent to £0.8601 per euro, the biggest gain since July last year.
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