Dollar slumps, yen and
franc surge as Trump rattles markets
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[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.
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"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.
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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
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"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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