United States dollar declines amid Trump uncertainty
The controversy spooked investors.
The stunning reports – denied by the White House – deepened the political turmoil engulfing Trump’s White House and intensified concerns among investors about the president’s ability to push through his big economic plans.
The euro was up 0.2 percent against the dollar at $1.11, the first time it’s breached that level since November, when Trump surprisingly won the USA election. Though the White House has denied the allegation, there’s mounting unease in markets over the developments in the US government.
Two of the three major indices posted their biggest single-day losses in eight months Wednesday as investors grew anxious over Russia-related controversies surrounding the Trump administration.
The allegations surrounding Trump have not only thrown doubt over the future of the pro-growth policies he promised, but have raised the possibility he could end up leaving the White House prematurely.
While the Dollar remains under pressure for now, we can expect some support for the greenback, though risk appetite will be on the back burner with European equities in the red at the time of the report, in response to the overnight slide in the Dow. “It’s kind of worrisome as it could take time to muddle through this”, said Joseph Benanti, managing director, senior sales trader at Rosenblatt Securities in NY.
While previous threats to Trump’s plans have rattled investors, they had failed to cause any significant pull back in stocks. Last week, the VIX hit a 23-year low, but has risen sharply since.
Those pledges had helped fuel a record-setting post-election rally on Wall Street.
Caution will remain the order of the day however, plenty of unknowns now gripping the markets, Trump creating more than a ripple or two.
At almost 18 times forward earnings, the S&P 500 trades at a significant premium to its long-term average valuations of 15 times, according to Thomson Reuters data.
Among other large stock markets, Frankfurt and Paris both lost about 1.5 percent.
“The obvious point we’ve made before repeatedly is that Trump now has much less political capital to spend in the Capitol, and that makes Trumpflation far less likely. We are already well positioned, but we need to think about a more negative scenario re tax reform versus what we were previously thinking”, said Edward Perkin, chief equity investment officer at Eaton Vance.
The Swiss franc and Japanese yen, currencies considered safe haven investments during times of uncertainty, surrendered gains against the greenback after the release of US initial jobless claims and the Philadelphia Federal Reserve’s Business Index. The safe-haven Swiss franc hit six-month highs.
Prices of bonds, seen as safe-haven assets, rallied, while yields were on track for their biggest daily percentage drops since July.
The number of Americans applying for jobless benefits fell to a 28-year low and the Philly Fed’s business index came in at double economists’ expectations. The euro hit its highest level since November 7, while prices of gold hit a one-month high.
The Dow fell 372 points, or 1.78 percent, to close at 20,606, while the S&P lost 43 points, or 1.82 percent, to hit 2,357, marking both indices’ worst single-day performance since September 9.