Top Currency Traders Warn White House Race May Echo Brexit Chaos

**Top Currency Traders Warn White House Race May Echo Brexit Chaos

Traders wanting to know what November’s U.S. presidential election will mean for the dollar need look no further than the U.K

The pound plunged to a seven-year low and volatility soared, exceeding all other Group-of-10 nations, on risks created by a referendum on European Union membership. Given the tough talk on dollar strength from candidates vying for the White House, the greenback is just as vulnerable to politics, according to Deutsche Bank AG, JPMorgan Chase & Co. and Standard Bank Group Ltd**.

Republicans and Democrats have each accused China of purposely weakening its currency to gain a trade advantage, reflecting voter unease linked to a 14 percent slide in manufacturing jobs during the past decade. As rhetoric becomes action, countries that have sought more competitive exchange rates will be in the firing line, spurring foreign-exchange volatility, Deutsche Bank’s Alan Ruskin wrote in a May 6 note. China, Japan and Germany were placed on a currency manipulator watch list by the Treasury Department last month.

“Given that there is an anti-globalization, anti-free trade strain that’s running through the American electorate, the strong dollar is going to be a potential victim,” said Paresh Upadhyaya, director of currency strategy in Boston at Pioneer Investments, which oversees about $236 billion. “The markets will start to price in a risk premium for the U.S. dollar and for U.S. financial markets.”

Brexit Precedent

JPMorgan’s John Normand, head of foreign exchange, commodities and international rates research, says investors should favor the euro and yen should any trade conflicts emerge post election. Steven Barrow at Standard Bank warns of a “pre-vote wobble” for the dollar – reminiscent of the pound’s response to Brexit – and a 20 percent slide for the greenback within months if Donald Trump were to win the White House.

Volatility Rises

The sudden realization that politics left the pound exposed came in February when British politicians settled on June 23 for a long-discussed referendum on exiting the world’s largest single market. Sterling volatility jumped by the most since 1998 on March 23, precisely three months before the vote.

The dollar’s day of reckoning may come as early as July, when the Republican and Democratic parties hold conventions to formally select candidates.

“Too strong a dollar has already come into the frame as an issue,” said Ruskin, the New York-based global co-head of foreign-exchange research at Deutsche Bank, the world’s second-largest currency trader. “Anything that is disruptive to trade or is perceived as likely to be disruptive to trade is a new source of uncertainty.”

‘Grand Master’

Trump this month called China the “grand master” of devaluation, saying the country is killing the U.S. on trade and that dollar strength damages American competitiveness. Clinton plans to “take on foreign countries that keep their goods artificially cheap” by appointing a trade prosecutor and adding penalties, according to a campaign website.

U.S. manufacturing jobs have tumbled to about 12.3 million last month from 14.2 million in April 2006, data from the Bureau of Labor Statistics show, with many of those jobs moving offshore. Automakers including General Motors Co. and Ford Motor Co. have shifted production abroad, with GM importing models made in China and Ford creating 2,800 jobs at a new $1.6 billion factory in Mexico. The U.S. trade deficit has grown to $40 billion, from $7.8 billion two decade ago.

“Most of the outcry is among domestic manufacturers who are finding it hard enough to compete against what they feel are unfairly priced Chinese products and then, to make matters worse, they don’t see the yuan as free-floating,” said David Schwartz, a partner at Thompson Hine LLP law firm who specializes in trade disputes. “Our major trading partners, if nothing else, have been put on notice.”

Watch List

China, Japan and Germany – plus South Korea and Taiwan – meet two of three criteria used to categorize unfair practices under a law enacted in February, the Treasury said last month. Nations that tick all three boxes would face “remedial action," with the president empowered to end trade negotiations or withhold project finance.

The election takes place against a constructive economic backdrop that’s supported an almost 18 percent gain by the dollar during the past two years as investors flock to the U.S. seeking higher yields relative to Europe and Japan.

That raises the stakes for many nations – from Australia and New Zealand to Switzerland and Canada – that have deployed wave after wave of stimulus to try to resurrect their slowing economies from the hangover of the financial crisis. Lower interest rates help foster domestic inflation partly by spurring currency depreciation, which also makes exports more competitively priced versus international peers.

There’s a higher bar to intervention and more pressure on the yen to strengthen as a result, said Chris Turner, the London-based global head of strategy at ING Groep NV.

**“Currency wars have played out globally, but U.S. protectionism hasn’t been an issue,” said Turner, who’s been analyzing markets for 25 years. “You hope you’re not going back to those dark days of the early 1990s because protectionism is bad for everyone but, listening to some of the speeches from the candidates at the moment, you might have a small amount of concern.”

Hope your election campaign goes better than our referendum campaign.

Here it just gets sillier by the day.

This is just more wall street corruption, trying to scare the whitehouse and the public into sticking with good old ‘business as usual’ instead of real change…wont work, they have tried this many times and in many different ways, and I presume many more to come.

Im sure once its fully realized it will be trump vs hillary, the ‘establishment’ and ones who do not want any change, will pull out all the stops, will be interesting to see how far they take it. LOL

How do you prevent foreign investors of buying your currency and bonds? And the central banks aren’t doing their own countries and the US any favors either. Negative interest rates are the most ridiculous ways of dealing with one’s economy. They are in essence giving the money away, not lending. Isn’t there an element of socialism in the whole idea?

These central banks can do to more harm than the worst of the politicians.

This situation we are in is almost like the frog who will sit in a pan of water over a stove and allow itself to be slowly cooked…instead of jumping out when it recognizes whats going on, it just sits there and enjoys the warm water.

The public is the like the frog, we like the idea of 0% interest rates so much, we dont care what the long term results are, just keep the money flowing, keep the people buying things, keep them willing to go into long term debt, etc.

The simple fact that they must keep interest rates soooo low and for such a long time, should be enough of a wake up call to nearly anyone, even the uneducated, to realize something is not right here and we are on a sinking ship, I mean, even when they announce SPECULATING about raising the rates a 1/4 point, it sends markets into a panic, banks start worrying, etc LOL

Are we all really too stupid to see whats happening?

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