Dol­lar slumps, yen and franc surge

Kuwait Times - - BUSINESS -

LON­DON: The dol­lar slumped and the Swiss franc and Ja­panese yen surged yes­ter­day as in­vestors wor­ried by the prospect of a Don­ald Trump vic­tory in next week’s US 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 US 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 US 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. 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 yes­ter­day, as well as the prospect that any blip on mar­kets glob­ally might cause the Fed­eral Re­serve to put an in­ter­est rate rise on hold.

“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 yes­ter­day 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.” — Reuters

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