FX market outlook

FX market outlook

Posted on Wednesday, November 9 2016 at 8:48 am GMT+0000

Gold surges, dollar tumbles, Mexican peso at record low as as news outlets project Trump win.


Risk sentiment took a hit and the dollar tumbled against the yen early on Wednesday along with other risk currencies as it appeared that Donald Trump took the lead in US presidential election.

As election results were coming out showing that Trump won some key states and he was leading in the vote count, it was looking more likely that he could win the election to become the 45th president of the US. Republicans are also projected to keep control of the US House of Representatives and perhaps maintain majority in the US Senate.

Investors are uncertain of what a Trump presidency would be like and so any uncertainty in the financial markets causes a flight to safety. This was evident in gold, which jumped almost 5% to hit a 6-week high of $1337.12.

Safe haven currencies like the yen and the Swiss Franc strengthened on risk aversion. The dollar plunged to 101.20 yen in the Asian session from an early session high of 105.46. The greenback dropped against the swissy to 0.9548, the lowest since August 19.

Meanwhile, the odds a Fed rate hike in December have now fallen from above 80% to below 50% and this will weigh on the dollar.

The euro surged to reach near the key $1.1300 level late in the Asian session.

The aussie, which is sensitive to risk, made losses against its US counterpart to touch a low of $0.7578 from above $0.7700 that it reached yesterday.

The currency that is to lose the most from a Trump victory is the Mexican peso, which fell to a record low after losing 13% against the dollar. Investors fear that Mexico’s trade with the US would suffer under a Trump presidency. USDMXN soared to 20.76 pesos in the Asian session, hitting an all-time high. The pair was at 18.15 pesos early in the session.

Equity markets suffered as well, as Japan’s Nikkei 225 index fell 6%  while S&P futures lost over 4%.

Oil prices also fell due to the risk off mood, with WTI futures sliding to a low of $43.07 a barrel and Brent touching $44.37 a barrel, the lowest since August 10.

As the economic calendar is light today, the markets will focus on the final result of the US elections. By early European session trading many news outlets were already calling a Trump victory.