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Tsunami in the markets and a stable zloty [FIRST CURRENCY MARKET REACTIONS AFTER AMERICAN ELECTIONS]

Donald Trump gained more than 270 electoral votes. This means that he will become the President of the United States of America. However, increasing chances for the Republican candidate caused approximately 5% declines in the stock markets, a more than 10% wear-off of the Mexican peso and a general decrease in the dollar’s value during the night. The zloty appeared to be very stable regarding this situation. Marcin Lipka, Cinkciarz.pl senior analyst, explains the market reactions shortly after the closing of the polling stations.

Marcin Lipka, główny analityk Cinkciarz.pl

After 3.00 AM CET, it was becoming increasingly certain that Donald Trump would win in the crucial swing states. This caused the market to evaluate his victory. The Mexican peso lost 6-7% of its value against the dollar immediately. During the following hour, this overvalue reached the level of 10%. Anxiety was also observed in the stock markets. Terminal contracts for the American indexes were losing 5% of their value. This caused time limits in the indexes traded at the Chicago Mercantile Exchange. A similar scale of declines was observed in the Japanese stock market as well.

The beneficiaries of this situation were the euro and the yen, which gained 2% and 3% against the dollar, respectively. On the other hand, the franc’s very stable behavior was a certain surprise, not to mention its slight wear-off against the euro. Admittedly, the Swiss National Bank had warned that it would intervene if necessary, but having in mind Brexit experiences, the market expected at least a temporary growth of the franc.

Dramatic depreciation of the lira and a calm zloty

The Mexican peso was not the only emerging market currency that went down to its historical minimum. At a certain point, the Turkish lira was losing 5% against the dollar and approximately 7% against the euro. These are historically the lowest values of this currency. The behavior of the South African rand was very similar. The depreciation of the South Korean won was significantly lower. However, according to Reuters, this was most likely because of a possible intervention from the Korean central bank.

The zloty’s behavior has been very calm. Even though the euro was above the level of 4.35 PLN this morning (the highest since mid-September), the zloty remains very stable in comparison to the other emerging market currencies. Moreover, limited global changes on the franc cause it to be slightly above the level of 4 PLN. Minor changes on the EUR/PLN, as well as to a strong overvalue of the dollar against the euro, have caused the American currency to go down to approximately 3.85 PLN overnight. However, this move has been worked-off and the USD/PLN is currently near its quotations from yesterday.

What will happen next?

The market reaction on Trump’s victory is not surprising. The currencies of countries, which may clearly lose on a more protectionist approach of the United States, have lost the most value. On the other hand, a slightly larger wear-off of the zloty against the euro, as well as a short-term strengthening of the franc at minimum, was very likely.

According to our previous estimations, the zloty is definitely more stable than the other emerging market currencies. It seems that this situation shouldn’t change significantly. This is mostly because Poland’s limited trade contacts with the USA. However, the American monetary policy remains an unknown. The first market reaction confirmed that this will most likely be milder than if Clinton had won. On the other hand, Trump strongly emphasized infrastructural expenses in his victory speech, which may increase the risk of a higher inflation. This could cause an increase in rate hike expectations, as well as a lesser likelihood of the dollar’s depreciation.

However, the zloty’s stabilization may be endangered by an increase in the decline in the foreign stock markets. If this happens, the Polish currency will probably lose value as well. Still, estimated changes should be less significant than in the case of the other emerging market currencies.


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