USD can rise on the prospect of a Trump win

Outlook

We await new polls after the presidential debate last night, but at a guess, the Biden lead will narrow. That’s because the voter has shown a sad ability to believe lies or to accept the liar even when they know he lies. Trump is still positioning himself as a rebel outsider while Biden has been in Washington for 47 years “and what has he done?” Actually, he has done a lot but none of it with roaring machismo and TV-worthy drama, and he failed to get that across last night. 

Mostly Trump won, perhaps, simply by not being crazy. He checked the impulsiveness, recklessness and other personality disorders so much on display in the last four years. In fact, the complete reversal in behavior is suspicious. Did somebody punch him in the jaw to wake him up to losing? Even his make-up was better and not the usual orange smear.

On the overall strategy, Trump lost by attacking Biden instead of running on his record, except for that boast about doing more for black people than anyone except Lincoln, which is so clearly not true. Biden’s strategy was to focus on the promises to the voter. Promises are shinier and more appealing than grievances.

None of the press reports show that Trump make any winning points. We disagree. We think he made several, including that Biden opposes fracking and he supports it, which goes far beyond certain voters in states where fracking is a big piece of state GDP (and never mind that fracking itself is fading away). It speaks to government regulation.

Ironically, the dollar can rise on the prospect of a Trump win specifically because Trump creates risk, and global risk at that. The dollar is down about 1% in the week and 5% so far this year, not a whole lot, and can be reversed easily next week if a realistic prospect of a Trump win starts to form.  

As for sterling, it has been hard not to sell it and go away, because it seems so obvious that membership in the EU has economic benefits. But now that we are coming down to the wire, fishing is the last hurdle. This seems ridiculous but let’s look at the Reuters report again: fishing is 0.3% of the UK economy and adding processing, it comes to 0.1% of the economy. Nobody gives up a deal for 0.1%. The issue is the symbolism of fishing. Keeping UK waters to itself is “an emotive subject as many Brexit supporters see it as a symbol of the regained sovereignty that leaving the EU should bring.” 

Besides, “For French fishermen, British waters are crucial and being locked out would cause trouble for French President Emmanuel Macron.” So keeping fishing waters is not silly at all. It’s a symbol for the Brits and a slap in the French face, both valuable assets to the UK. Presumably the Dutch and others fish in what the UK sees at their waters, but historically, it’s the French that count.  France is just one country in the EU and it’s not hard to imagine the EU saying “Sorry, but you lose.” Thus, a deal can be imagined and the temptation to sell the pound wholesale goes away. Presumably this is what the sterling bulls have been expecting all along.

The new conventional wisdom has it that with Covid 19 on the rise again in Europe, the ECB will be forced to act and to the detriment of the euro. In the US, with cases also on the rise, no action is likely by the Fed or by Congress, also to the detriment of the dollar. It’s like competing catastrophes—my tornado is worse than your hurricane. In the end, we do not expect the ECB to act, at least not at the November meeting. The euros is a bit on the backfoot over this issue, but if Biden still leads by the middle/end of next week, getting rid of Trump reduces perceived riskiness by a vast amount and the dollar will continue to fall.

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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