Whether this means the currency impact of the Trump win amounts to a storm in a tea-cup or actually be an ongoing factor in global markets will become clear in the fullness of time. There are however reasons to think that while the short-term fallout seems likely to be limited there could be more volatility coming.
According the head of the UK investment office at UBS Wealth Management Geoffrey Yu, fears over the impact on currencies appear overblown.
“There have been sweeping statements about the dollar tanking in the event of a Trump win, but it is not the case,” he said. “You need to look at the dollar versus particular currencies rather than making sweeping statements. When you do, you see the dollar has not fallen against most other currencies. In fact, it looks like currencies around the world will trade broadly flat today with the exception of the Mexican peso”.
“Markets are much more comfortable with currency valuations generally than they were earlier on this year, Yu explained. “The peso will continued to be under pressure but outside of that we do not expect significant shifts. As sterling has shown, structural shocks can cause a currency to be repriced, but the Trump win does not appear to be a structural issue, at least at this stage,” he added.
“Currency movements have been unnervingly contained so far, which is odd,” said Richard de Meo managing director of currency specialists Foenix Partners. “There were also no real trading patterns over recent weeks that would point to how markets should have been expected to react. We have seen a lot of large dollar orders placed with us, but not really seen the sort of sell-off these orders should imply.”
“Overnight as Trump moved into the lead and then won, dollar weakness came through which made sense but the change in tone he showed in his acceptance speech reversed that.” There are still plenty of reasons we could see further dollar weakening in the medium term however, particularly the potential for trade restrictions so the currency is not out of the woods, De Meo noted.
Justin Oliver, deputy CIO at Canaccord Genuity Wealth Management noted that the potential for dollar weakening is limited by the relative nature of currencies.
“On balance, one would expect the dollar to be weaker than would otherwise be the case; the problem is weaker against what?,” he said. We have already seen the yen move higher, but the Japanese can ill-afford a much stronger currency although may be powerless to do much about it.”
