USD: Back on its heels - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the election uncertainty in the USA has knocked the USD back on its heels. 

Key Quotes

“It is not just that the race has tightened, it is that after the election the loser is likely to cry foul loudly and persistently, damaging the legitimacy of the President and confidence in key institutions; including the FBI and DoJ.

Political stability may remain permanently damaged.  If Clinton wins we cannot be sure that Republicans in Congress and their supporters within the FBI and other institutions do not attempt to bring on impeachment proceedings against the President.  Even if these were to fail they would undermine the capacity of the administration to guide any positive legislation and the prospect of any compromise across party lines in Congress will seem very low.  This may well act as a persistent weight on economic confidence in the USA.

Some additional political uncertainty is now priced into the USD in the last week, and we may see some relief rally if Clinton were to perform well in the 8 November election.  Even if she were to win narrowly, there may be an initial relief rally in the USD as investors fear most a Trump victory given the greater potential for policy upheaval with uncertain consequences.

However, the market is not yet focused on the damage that appears to have been done to confidence in the stability of the system where political opponents attempt to undermine the winner through investigative and legal institutions.  Attention will turn to how magnanimous is the loser.  Will Trump call for unity? Will Clinton blame the FBI and will her supporters call for investigations into Trump’s connections to Russia or past actions of his business empire? Only through gritted teeth at best, I suspect.  Any recovery in confidence following the election may be limited and fragile.”