Dollar slumps, yen and franc surge as Trump rattles markets

[November 02, 2016]  By Patrick Graham

LONDON (Reuters) - The dollar slumped and the Swiss franc and Japanese yen surged on Wednesday as investors worried by the prospect of a Donald Trump victory in next week's U.S. presidential election sought out safe havens for their money.

The yen, driven lower in the past month as investors abandoned long-term bets on it strengthening past 100 yen per dollar, gained more than half a percent to hit its highest since Oct. 21.

The franc hit its highest in a month against the greenback and a four-month peak against the euro. It has gained almost 3 percent in the past week against the dollar as improving polls for Trump prompted investors to trim bets on a rise in U.S. interest rates in December.

Polls on Tuesday put Trump ahead by 1-2 percentage points, although Clinton held a five-percentage-point lead in a Reuters/Ipsos opinion poll released on Monday.

"The resurgence of Donald Trump in the polls so close to election day has seriously rattled investors," said Craig Erlam, senior market analyst with Oanda in London.

"It's been clear for some time now that markets would much prefer the stability that a Clinton victory would bring for the U.S. economy and the reaction over the last 24 hours or so since the polls started to change so dramatically just confirms this."

The euro, whose extremely low interest rates have increasingly seen it gain at times when investors are feeling less sure about global economic growth, gained a third of a percent to hit a three-week high of $1.1099. <EUR=EBS>

The dollar index showing its broader strength against a basket of currencies hit a three-week low of 97.386.

The day's single biggest move among the majors, however, was the New Zealand dollar, up 1.3 percent after strong domestic jobs data that quashed expectations for further cuts in interest rates.

DOLLAR SPLIT

While some argue that a Trump presidency might lead to substantial repatriation of funds to the United States - and hence into dollars - the running assumption of markets in the past month has been that the currency would fall if he won.

That largely seems the product of the potential for investors to take risk off the table, as they were on Wednesday, as well as the prospect that any blip on markets globally might cause the Federal Reserve to put an interest rate rise on hold.

Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo

"If Trump wins I think what you end up with is that there are two different dollars," said Richard Cochinos, head of European G10 FX strategy with Citi in London.

"It is very likely it can weaken against the other majors but it is very likely it will gain against emerging market currencies like the peso, the rand and so on."

The Mexican currency weakened 0.8 percent on the day to a one-month low of 19.43 per dollar.

The Fed ends its two-day November meeting on Wednesday and will issue a statement that is widely expected to open the door, on economic grounds, to a rise next month. A number of dealers and analysts said that might prove irrelevant in the context of the election.

"Neither a positive signal sent out by the labor market report (on Friday) nor the willingness of the Fed to hike rates is likely to constitute a reason for the market to trade the dollar stronger," said Commerzbank strategist Esther Reichelt.

"The market knows full well that everything could look very different in a week’s time."

(Editing by Catherine Evans)
 

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