The US dollar dipped against major currencies and stocks all over the world fought to stay up on November 21 as European political risks ballooned and the Trump influenced rally decelerated to a halt. US Treasury yields fell too from its 2016 highs. The yields have only risen since the time Donald Trump won with a Republican ticket the US Presidential election. The market believed that a Trump Presidency will raise US inflation and growth, leading to steeper interest rates.
Increase in uncertainty
Uncertainty was further amplified by the strong electoral results of Francois Fillion, a conservative French politician and a former Premier. A few political pundits have suggested that there could be a victory for Marine Le Pen, the far right leader in the election scheduled to be held in April 2017. Le Pen belongs to a far right political party. Reassurance came from Germany when Angela Merkel, the German Chancellor, announced on November 20 that she will contest a fourth term in the elections to be held in September 2017. There was an uncertainty after the UK elected to exit the European Union. This instability further intensified when Trump was elected to the highest office in the United States.
The American dollar slid 0.3 percent against a six currency basket. However, it remained close to its peak levels since 2003. There was an increase in value of the Japanese Yen, which rose about 0.3 percent to reach 110.51 for every dollar. Earlier, it was trading at a weak 111.19 Yen. The euro went up by 0.5 percent to reach $1.0649. Analysts believe that this move mirrors the large political risks which face Europe in 2017.
European politics and the market
In the case of Italy, where the country faces a referendum which Matteo Renzi, the country’s Prime Minister, has gambled his job, the government’s 10 year yields went up by 2.4 basis points to reach 2.05 percent. Italy’s German equivalent, in contrast, dipped by 0.3 bps to reach 0.28 percent. According to Martin Van Vliet of ING, the primary vote in France can indirectly contribute to concerns regarding the anti-establishment European backlash. He added that even though there is less of the sell-off in the core bonds, the periphery continues to see pressure. There was a drop in the European shares, followed by dipping Asian markets. There was a 0.7 percent loss in pan-European STOXX index. Japanese shares went up by 0.8 percent.