Wednesday, 9 November 2016

Sterling up as markets weigh Trump victory

Sterling rose against a rattled dollar on Monday in volatile trading after a surprise victory for Donald Trump in the U.S. presidential election.

The pound was up 0.2 percent to $1.2410 after briefly entering negative territory earlier as markets reacted to Trump's win over Democrat Hillary Clinton who was seen as the status quo candidate.

Investors were caught off-guard after pricing in a Clinton victory this week as she broadened her lead in pre-election polls thanks to a reprieve from a FBI investigation into her use of a private e-mail server while secretary of state.

While sterling jumped 0.7 percent in early trade as Trump edged closer to the White House, it has settled since his acceptance speech. Analysts pointed to the caution with which traders have approached this election after a surprise British vote to exit the European Union in June shocked markets.

"Now the dollar and the pound are two highly charged political risk currencies," said CMC markets chief market analyst Michael Hewson.

"There’s a lot of political risk surrounding both of them so obviously any weakness the dollar will have is mitigated by Brexit."

The euro was up more than half a percent against the pound, after hitting a week's high of 90.26 pence in early trade.

"The euro has benefitted from dollar and sterling volatility" Hewson said. "It says something when the euro is considered a beacon of stability, given the euro zone’s own problems, and it’s indicative of the broken politics that are afflicting global markets."

While declines have been orderly, markets are bracing for a period of volatility as Trump's victory increases policy uncertainty and its impact on near-term U.S. and global growth, which could also influence the U.S. Federal Reserve's monetary policy.


"It's reasonable to assume that the Fed may put December rate hike preparations on hold until more clarity is reached on the data, but even more importantly the market will be looking for confirmation that (Fed) Chair Yellen will not resign," Deutsche Bank's George Saravelos said in a note.

Reference: Toby Chopra

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