After US President Joe Biden withdrew his candidacy for re-election, there should have been an effect on the foreign exchange market. After all, everyone says that speculative market participants had positioned themselves in line with the effects that are supposedly expected if Donald Trump becomes US president again. And since the chances of almost all Democratic candidates are probably higher than those of the apparently mentally incapacitated Biden, there should have been a partial reversal of Trump’s trade today. But that is not the case, notes Ulrich Leuchtmann, FX strategist at Commerzbank.
USD does not react much to Biden’s withdrawal
“The Dollar Index (DXY) opened this morning in Asia with only minor moves, but is essentially trading at the same levels as Friday. U.S. government bond yields are also only marginally changed. And even the Mexican peso, the “mother of all Trump trades,” is trading roughly where it ended last week. Why?”
“The fact that Biden would withdraw his candidacy was already being whispered about on Friday. The timing of his announcement will likely only have very marginal effects on the outcome of the election in November. And therefore, the market reaction this morning should also be minimal. I’m not sure if Trump’s trade talk has any substance or is just another urban legend.”
“The foreseeable effects of a Trump presidency on USD exchange rates will depend on the Fed. Or rather, on how much it is under the control of the White House and how much it can maintain its independence. That is not clear. Therefore, I strongly advocate being prepared for anything. But I do not see in which direction a supposed Trump trade in the currency market should point.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
