Good Evening All;
A tightening race for the U.S. presidency cast a pall over markets, including foreign exchange, causing the dollar to drift further from multimonth peaks. The dollar has swung from multimonth highs to multiweek lows as the battle for the White House shows signs of becoming a footrace. Until recently, the prospect of a Donald Trump presidency was considered a tail risk. Hillary Clinton, once considered a shoo-in by many to win the White House, has endured a material slide in opinion polls in the wake of the FBI taking another look in to her email server troubles. Meanwhile, keeping the market temperature elevated is a decision today at 2 p.m. ET by the Federal Reserve. The Fed is not expected to adjust interest rates so close to the election but its statement could hint at the likelihood of action next time which can be impactful for the dollar.
says it all: its rally today to late September highs above 19.40 underscores market trepidation over prospects of a Trump presidency. A win for Mr. Trump could translate into a loss for Mexico’s economy given that the Republican nominee has voiced support for erecting a wall along the U.S.-Mexican border and altering trade agreements. Highly sensitive to U.S. election news, the peso is seen at risk of sliding to new historic lows if Trump wins, while a Clinton victory would leave it in line for a relief rally.
The euro climbed to three-week highs as German unemployment fell and U.S. political uncertainty rose. Germany’s jobless rate fell to an all-time low of 6.0 percent in October, boding better for the outlook for growth in Europe’s biggest economy. Although downside risk has diminished for the euro in the wake of the rise in U.S. political uncertainty, upside also looks limited, particularly if the Fed today should affirm market expectations of a rate hike this year.
Sterling clocked two-week highs, benefiting from rising U.S. election risk which for now has put a halt to the dollar’s rally. The pound at the margin also got a boost from news the head of the Bank of England will stick around longer and possibly see Brexit negotiations through to completion which helped to tamp down on U.K. uncertainty. Mr. Carney & Co. issue a policy decision tomorrow, though expectations of action are low in the wake of the economy, while not out of the woods, performing better than expected despite Brexit uncertainty.
Safer bets like the yen and Swiss franc outperformed with U.S. election anxiety nearing a fever pitch in the run-up to the Nov. 8 vote. A too close to call election would be a boon for safe harbor assets. Conversely, a Clinton win could swing the tide the other way and exert renewed pressure on the yen and other defensive plays.
A weakening U.S. dollar helped the loonie weather a fall in the price of oil to below $46. The loonie also found some support from news this week that Canada’s economy grew for the third time in as many months in August. Nevertheless, like the peso, the loonie could be saddled with a degree of U.S. political risk should American voters choose Donald Trump next week. Mr. Trump has talked about renegotiating U.S. trade deals that could impact Canada’s export-driven economy. Meanwhile, lurking right around the bend is Canadian data Friday on hiring and trade.
The broadly weighted dollar index hit three-week lows as a rising political uncertainty put a halt to its October rally to multimonth highs. High stakes event risks between now and the election have prompted many to scale back exposure to the dollar. Meanwhile, doing little to revive demand for the buck, the ADP jobs survey showed a surprise slowdown in hiring of 147,000 in October, the fewest since May, from an upwardly revised 202,000 in September. All eyes and ears will be on the Fed’s 2 p.m. ET decision. No change is likely but the Fed’s statement could hint at the likelihood of action at its next meeting in mid-December. A statement that strikes a neutral tone and stops short of affirming an imminent rate hike would weigh further on the dollar.