- Dollar index posts its biggest one-day gain since mid-August, rising around 0.6%, as the pound and the euro come under pressure.
- Emerging market currencies tumble, stripping almost 2% off the Mexican peso and sending the offshore yuan to a one-month low against the dollar.
- “It’s a rollercoaster,” Credit Agricole strategist Manuel Oliveri said.
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The dollar roared higher on Wednesday, boosted by a flood of cash from investors who had not banked on the outcome of the presidential election being so close, particularly after Donald Trump prematurely declared victory, well before all the votes had been counted.
“It’s a rollercoaster, (I) can’t make a directional view,” Credit Agricole strategist Manuel Oliveri said, arguing that USD gained on Trump’s “surprising” positivity.
Trump, speaking at a press conference in the very early hours of Wednesday morning, said he would ask the highest court in the country to stop the vote counting. Earlier in the day, he falsely claimed the Democrats were stealing the election, prompting Twitter to flag the post.
“We are going to win this and, as far as I’m concerned, we already have,” Trump told supporters, despite the count so far showing a narrow lead for Democrat opponent Joe Biden.
The dollar index rallied around 0.6%, to its highest since late September, marking its biggest one-day rise since mid-August, driven most notably by its gains versus the euro, which fell 0.4%.
“The dollar is showing gains against most major currencies as it looks like we may be moving to a contested election scenario,” said Ned Rumpeltin, European Head of Currency Strategy at TD Securities.
The pound also took a beating, falling as much as 1.1% to $1.2915, the most in nearly two months.
“While you could explain the [GBP] underperformance with the weakness in risk sentiment, investors may be also worrying about the impact of a potential Trump victory on the Brexit negotiations. Indeed, if the hard Brexiteers are emboldened by the latest developments across the Atlantic, this may even scupper the ‘oven-ready’ deal that the PM was talking about,” Marinov said, referring to Conservative prime minister Boris Johnson’s claim some time ago that Britain had a trade deal proposal for the European Union that was virtually ready to go.
A contested election was on the minds of other strategists this morning.
“The growing threat from having a contested election as well as the prospect of a potential Trump victory has been weighing on risk and helping the USD so far this morning. A confirmation of either of these risks later today could push the USD higher still,” said Valentin Marinov, head of G10 currency strategy at Credit Agricole.
“Risk-correlated currencies could remain vulnerable as well, especially those correlated with the CNH and the EUR,” Marinov said.
Some of the hardest-hit currencies were those that are most sensitive to any headlines on trade, such as the Mexican peso, the Chinese yuan and the Turkish lira.
The Mexican peso was the biggest loser on the day, falling as much as 3.7%, before recovering somewhat to show a loss of 1.8%, while the offshore yuan dropped 0.5% and the lira fell 1.3%.
“If the chances of Trump winning grow – and we will see about that in the next few hours – the dollar will strengthen, especially against the EM currencies that counted on Biden’s win, mainly across Asia,” Piotr Matys, an EM strategist at Rabobank, adding
“The main action is likely to take place amongst currencies vulnerable to Trump’s second presidential term, so the focus should be on Asia,” he added. “We’re in for a volatile session.”