Political pressures in the U.S. have suddenly increased – Rabobank

Jane Foley, the senior FX strategist at Rabobank, notes that domestic political pressures in the U.S. have suddenly increased with the news that House Speaker Pelosi would proceed with an “official” impeachment inquiry into President Trump.

• “To date Pelosi has resisted calls from fellow Democrats to start such proceedings on the basis that it could increase sympathy and support for the President into next year’s election.
• Trump’s accusers are arguing that the President has used his position for his own gains and that this is an impeachable offense.
• As a rule of thumb a rocking of the political status-quo tends to be a currency negative factor. There are clear and important exceptions to this. Safe haven currencies (the JPY and the CHF) tend to perform well as the tone of the news flow deteriorates. At least since early 2018 it is clear that the USD is performing as a safe haven for a large number of investors. This is despite the fact that the US has poor budget and current account positions.
• The USD’s behaviour is likely being influenced by its dominance in the global payments system. Global demand for USDs have risen substantially in the years since the global financial crisis. Since dollars have become more necessary to an increased number of people it is not surprising that USD demand may increase with risk aversion.
• The impeachment process may distract attention away from the normal business of government in the near-term. On balance, this is likely to increase risk appetite which could leave the USD well supported.
• The USD is the best performing G10 currency on a 1 day view followed by the safe-haven CHF. The safe-haven yen is much further down the list of performers on the back of dovish comments from BoJ officials early this morning. Given the weakness of the Eurozone economy and the resultant downside pressure on the EUR, we retain our view of a soft EUR in the coming months. On the back of slowing global growth and prolonged trade wars we continue to expect safe-haven currencies to perform well and we retain our forecast of EUR/USD1.09 on a 3-month view.”