Does Iowa affect the Dollar?
By Iowa I of course mean the events in the Republican nomination race that have dominated business, political and financial news flows overnight. The polls and pundits had far from ruled out Trump as the Republican candidate for the race to the White House. However, the margin by which Trump won the Iowa caucuses yesterday is a very strong early sign that he may return as the Republican candidate. Trump’s victory in the Iowa caucuses showed him take a record percentage of the ballot, surpassing George W Bush’s record made in 2000 by some 10%.
As we know, the road to securing a party’s nomination is far from straightforward. Even once the nomination is secured it’s still an often fraught two-horse race to the White House. It’s therefore far too early for anyone to conclude we are looking at another term for Trump. But markets are unlikely to overlook the impact upon the probability of this possible outcome based upon yesterday’s party particular events. The Dollar is marginally stronger overnight outperforming on almost every cross.
If you recall pre-2017, Trump was seen as a USD positive President. For better or for worse Trump as a candidate showed no hesitation to spend and had a distinct version of pro-growth fiscal policy. The expected willingness for fiscal expansion largely drove the expectations for a stronger Dollar. Whilst there were elements of a stronger USD during Trump’s presidency, any tangible effects were largely entangled with the Covid pandemic. There would be nothing stopping markets interpreting another Trump term as Dollar positive. However, the overnight moves are far more likely attributable to a shift higher in short term US rates that has been dominating market flows since last week.
Discussion and Analysis by Charles Porter
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