Morning Brief – Fake News – Old News?

Fake News – Old News?

In the early hours of this morning it became clear that Donald Trump, serving US President since 2017, had been impeached. From this side of the Atlantic the term “impeachment” seems daunting and we might assume that those who fall victim to it must surely be condemned to an inescapable and unenviable fate. A conviction of impeachment in the United Kingdom typically refers to acts of Treason and, until only a couple of decades ago, was still punishable by hanging. In the US, the consequences for Donald Trump are far less dire and deadly! In contrast, even if the impeachment proceedings go the full mile against the incumbent President – something a very long way off – imprisonment wouldn’t even be on the table! Accordingly, the reaction of currency markets to the political development have been limited.

What happened?

President Trump lost two votes in the House of Representatives last night. The first vote, an investigation into a misuse of power, saw the president lose by a majority of 33 votes, with 230 votes to the united Republicans’ 197. This vote was important because it carries the verdict on Trump’s leveraging of the Ukrainian President to investigate the Bidens which, you will note, is the accusation that has attracted the most media and therefore voter attention. The second vote, which passed by a slightly lesser margin of 31 votes, confirmed the House’s opinion that the President has obstructed Congress and therefore in their opinion undermined US democracy.

What happened in currency markets was underwhelming. A mild sell-off in EURUSD saw the value of the US Dollar fall by only about 0.15 of a cent versus the European single currency. Against a Pound Sterling that is still trying to find its feet in the days following the general election, the US Dollar showed no change even several hours after the vote took place. Perhaps the only discernible currency movement was a small revaluation in the Japanese Yen, a barometer of risk, during the decision.

Were traders just asleep?

No – they just didn’t really care! In the United States’ bicameral system it is the Democrats – those represented by Biden himself in the previous administration – that control the House of Representatives. Political partisanship alone would therefore dictate that Trump was successfully impeached. Moreover, with no immediate ramifications other than the impeachment debate now passing to the Senate (controlled by Trump’s Republicans), it will be business as usual in the United States today. The Senate will hold a trial on the impeachment movement against the President early next year and, given the composition of the legislative body, is more likely to put an end to Trump’s attempted ousting.

Trump isn’t the first US President to face impeachment proceedings, in fact he is the fourth. In recent history, it has been Presidents Nixon and, after him, Clinton that have faced these proceedings. Before their time it was President Johnson that was impeached in 1868. Whilst the fortune for Nixon wasn’t so bright given his resignation ahead of formal impeachment, President Clinton at least continued his term to serve for more than one additional year – “I did not have sexual relations with that woman”. In the time that followed both impeachment hearings and votes, the impact on the US Dollar was clouded and little can be taken from US Dollar price action over these periods in order to guide us through the next phase of Trump’s impeachment. It is worth noting, however, that if Trump is successful in sealing the Republican nomination for 2020 he will become the first President to seal a party nomination having suffered the House’s impeachment.

The US Dollar will not suffer from the impeachment proceedings as they unfold so long as polling continues to be blind to the accusations of misuse of office and frustration of congress. Particularly in 2017, we learned that Trump’s Republican Presidency is supportive of the US Dollar particularly due to his pro-business agenda. Having rightly downplayed the probability of Trump’s Presidency being ended by these proceedings alone, make no mistake; a credible threat to restore the United States to a Democratic presidency in addition to political uncertainty could be Dollar negative. Accordingly, if the Democrats manage to use Trump’s impeachment to their electoral advantage in 2020 then a devaluation of the US Dollar could ensue. Today will also see the Bank of England release its latest monetary policy decision. The decision will be important for the Pound if the Bank acknowledges the latest general election and its likely impact on economic uncertainty due to Brexit. My opinion is that the outgoing Carney is unlikely to offer his two cents for fear of both politicising the monetary authority and overselling the incumbent Conservative Party.

Discussion and Analysis by Charles Porter

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