As the world comes to terms with the shock victory by Donald Trump in the US Presidential Election, leading foreign exchange experts, Infinity International, have said that the main effect on the financial markets will be uncertainty.
Analyst Perry Asforis says that the result comes at a time when markets were beginning to come to terms with the uncertainty caused by the narrow vote for the UK to leave the European Union in June.
The way investors see it Trump and his economic positions are less predictable than Hillary Clinton’s and do not always follow Republican Party orthodoxy, and so he is perceived as more of a political risk.
That, as well as the fact that major forecasters thought a Clinton win was more likely ahead of the result, have created a surprise for investors and uncertainty for financial markets.
It’s worth reiterating the idea that markets see Trump as a political risk. And so, perhaps it’s useful to also consider what happened in the markets after other political shocks. Specifically, we focus on Brexit — whose populist-movement underpinning draws at least some parallels to the rise of Trump.
In the immediate aftermath of Brexit, in June. On the Friday after the British People voted to leave the EU, the S&P 500 and the Dow both wiped out all of their gains for 2016, while Nasdaq fell by over 4% —the biggest one-day drop since 2011. The Pound dropped 13% against the USD.
That sort of emotional response to a political shock is actually quite typical of investors’ behaviour (and more broadly human behaviour). Unexpected and potentially destabilising political events tend to make traders and investors nervous, which then sometimes leads to volatility in financial markets. But as history has shown time and time again, these events generally do not have a sustained impact on markets.
Donald Trump (Republicans) was returned as the winner of the 58th US Presidential Election on Tuesday 8th November, this after the Opinion Polls had been pointing towards a Hillary Clinton (Democrats) victory right up until the final weeks of the campaign.
Seeing how the US Dollar had been trading a month or so ahead of the Election, the markets appeared to be pricing in a Clinton (Democrats) victory, then as the polls began to doubt this outcome, US Dollar volatility increased. When Trump was announced as the winner in the early hours of 9th November, there was an initial sharp retreat for the US Dollar, but this was short-lived and the US Dollar has subsequently enjoyed widespread gains.
Three weeks on and the US Dollar remains firm. But can this be sustained? Does the US Dollar still offer good value, or might there be a case to consider booking some profits?
US Dollar Trade-Weighted Index aside, the US Dollar is now in an uptrend against all other major currencies. However, it is overbought and starting to look at risk of a setback to partially unwind its recent advance, before possibly being set to head higher still towards year-end.
Infinity International, as a leading provider of foreign exchange and international payment services to companies and individuals based around the globe, is well placed to observe the dramatic changes that major political events can have.