EM FX expected to stabilize after Trump’s win – Danske Bank

Mathias Mogensen, Analyst at Danske Bank, sees EM currencies trading on a more steady fashion in the near term.

Key Quotes

“The reaction in EM currencies to Trump’s victory was fairly benign at the end of the day”.

“After an initial sell-off in EM currencies, most of them have recovered during the day. The only real exception was the MXN, which fell more than 8% after being down by 14% in the immediate aftermath of the US election result due to improving market sentiment and probably profit taking on relatively stretched short positions”.

“It is in our view too early to say what the Trump administration’s stance on foreign and trade policy will be, but the market appears to have taken a rather sanguine view, especially after Trump struck a relatively conciliatory tone in his victory speech yesterday”.

“Although the Trump administration will probably be less aggressive than signalled during the election campaign, it will still pursue a more aggressive trade policy versus emerging markets, which will eventually weigh on selected LATAM and Asian currencies”.

“However, until we will get more certainty on the policy line of the Trump administration over the coming days or weeks, EM currencies will probably trade fairly steadily, including the MXN”.