Dollar bounces back from
Clinton email shock
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[October 31, 2016]
By Patrick Graham
LONDON
(Reuters) - The dollar recovered some ground on Monday after a Friday
night slide on news that the FBI was investigating newly discovered
emails as part of a probe into Hillary Clinton's use of a private server
while she was secretary of state.
A Clinton win in next week's U.S. presidential election is generally now
seen by analysts as likely to be a positive for the dollar, clearing the
way for the second rise in a decade in official U.S. interest rates in
December.
By contrast, a victory for businessman Donald Trump, while read as
carrying the potential to encourage repatriation of dollars, would be
expected to unnerve investors, supporting the yen and other perceived
safe havens for global money.
"The Clinton story of course has had an impact," said Richard Benson,
co-head of portfolio management at currency fund Millennium Global in
London.
"The polls are now roughly 50-50, but the probabilities are still hugely
in favor of Clinton, given how the votes are spread out (per state). The
question is whether people decide to reduce risk ahead of the election."
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He said if that did happen, it would help the yen but damage some
emerging market currencies against the dollar.
The Mexican peso, seen as the main barometer in currency markets of
Trump's chances of victory, inched higher in morning trade in Europe
after falling as much as 2 percent peak-to-trough on Friday. <MXN=>
The dollar, still on track for a solid monthly gain despite a more
general round of profit-taking by investors last week, rose 0.4 percent
against the euro to $1.0947, still just half a cent above Friday's lows.
The dollar index, which tracks the greenback against a basket of six
major currencies, added 0.3 percent to 98.610, up 3.2 percent for
October but below last Tuesday's nearly nine-month high of 99.119.
Barclays strategist Hamish Pepper said the probabilities of a Clinton
win were still in favor of the dollar but he also noted that the U.S.
currency might itself benefit from any general wobble for financial
markets on further poll gains by Trump.
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U.S. one hundred dollar notes are seen in this picture illustration
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Investors have tended to see Clinton as the candidate of the status quo, while
there is greater uncertainty over what a Trump victory might mean for U.S.
foreign policy, international trade deals and the domestic economy.
"To
the degree that you might see a Trump victory sparking risk aversion, the knee
jerk might even see the dollar being supported by some safe haven flows," he
said.
"Its probably a week where the dollar can continue to do relatively well but we
are not in the world where the dollar is undervalued, if anything by our metrics
it is slightly overvalued, so you are not going to see big moves."
Before news of the FBI's fresh investigation emerged on Friday, the dollar had
gained on stronger-than-expected U.S. GDP growth, which reinforced expectations
that the Federal Reserve was on course to raise rates.
The Fed is widely expected to keep its policy on hold at its policy meeting
ending on Wednesday. Money markets were still pricing in about a 70 percent
chance of a rate hike in December.
(Additional reporting by Lisa Twaronite and Hideyuki Sano in Tokyo; Editing by
Mark Trevelyan)
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