The surprising news of a Donald Trump victory came as a shock to the foreign exchange markets on Wednesday morning which had priced in a Clinton win. It was this sudden shock that caused a wave of uncertainty to trigger a global Dollar sell-off, similar to the reaction we saw in Brexit. Trump however, appeared to have learned the lessons from Brexit, which failed to establish the positives quickly. Whereas Trump made an impassioned and inclusive speech to make America great again.
This led to a short sharp 2 cent bounce in the cable rate over a 4-hour period with a quick recovery back to mid-1.24s. Yesterday rallying further to the strong 1.25 levels we saw when the market had priced in a Clinton victory.
In the short term, I expect data publications to be the main driver behind shifts in the value of the US Dollar with the University of Michigan consumer sentiment index released this afternoon at 15:00pm, giving a snapshot of consumers’ willingness to spend. Further to this, next week we have advance retail sales for October (Tuesday), Initial and continuing jobless claims and consumer price index (Thursday). With the quantity of economic data coming out next week our brokers are on hand to discuss any questions you may have of the likely impact on rates.
The biggest obstacle for the US Dollar to overcome is the FEDs decision on whether to raise rates on the 14th December in light of the surprising Trump win. However, as the Dollar is seemingly unaffected by the election result and economic data continues to holds steady a rise is likely. This could heap added short term pressure on the Euro which may allow GBP/EUR to strengthen further as a result.
Whilst economists at Moody’s rating agency suggest it may not be possible to fully implement all plans set out by Trump who takes office on 20th January 2017, in doing so would likely trigger a long recession, lasting to the end of his term. Shrinking the economy with 3.5m jobs lost and the unemployment up from 5% to 7% in 2020.
However, until details become clearer regarding Donald Trump’s policies and the FEDs interest rate decision on 14th December it is difficult for the US Dollar to gain any real long term direction.
During this turbulent time it is important to stay in regular contact with our team so you are in a position to capitalise when opportunities present themselves. Call our trading floor on 01494 725 353 if youd like to discuss a transfer.
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