Dollar Surges Most Since Brexit After Trump Election Surprise

November 9, 2016 10:05 AM
President Donald J. Trump

(Bloomberg) -- The dollar surged the most since the day after the U.K.’s vote to leave the European Union, recovering from an overnight selloff, as Donald Trump’s conciliatory victory speech calmed market participants reeling from the shock result in the U.S. presidential election.

The greenback rallied against most major peers and against emerging-market currencies. The turnaround followed a reversal in 10-year Treasuries. Expectations for a December interest-rate hike by the Federal Reserve, which had fallen to about 50 percent as results pointed to a Trump triumph, returned to almost 80 percent.

The Republican’s win is the second major jolt to currency markets in less than five months after Britain voted in June to exit the EU. As Trump took the stage just before 3 a.m. New York time, the greenback had already begun recovering from declines of as much as 3.8 percent against the yen, a traditional haven during times of turmoil.

“The speech did calm the market down,” said Stephane Marie, head of foreign-exchange dealing operations at Swissquote in Gland, Switzerland. “So far, we only saw the eccentric, megalomaniac Trump and people were expecting, as was I, a very aggressive speech. But his speech was professional and presidential. It was a surprise.”

A Bloomberg gauge of the dollar was set for its biggest gain since June 24, and reached the highest since March. The dollar rose 0.7 percent to 104.48 yen as of 10:09 a.m. in New York, and by 0.6 percent to $1.0957 per euro, having earlier plunged about 2.4 percent.

The victory by Trump, 70, is still expected to spur a sea change in U.S. policies that directly affect the dollar, as his party also secured majorities in both legislative houses. The real estate magnate has promised to tear up trade agreements, having called China the “grand master” of currency devaluation and argued that a strong dollar damages American competitiveness.

He also accused Fed Chair Janet Yellen of playing politics, saying she’s kept rates too low during President Barack Obama’s tenure, suggesting he may nominate someone else to lead the central bank once her term ends in 2018.

“We’re really, for a while, going to be in uncharted territory because we don’t know how much additional volatility asset markets and economic outcomes are going to attain because of this event,” said Steven Englander, global head of Group-of-10 currency strategy in New York at Citigroup Inc., the world’s biggest foreign-exchange trader.

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