Clinton victory without a Democratic majority will lead to smallest G10 FX movement - Nomura

Research Team at Nomura, suggests that the Clinton victory without a Democratic majority in the US elections will likely lead to the smallest G10 FX movement.

Key Quotes

“We assume US rates will show a slight recovery, while US equities also rise slightly, thanks to lower political uncertainty.

Our sensitivity analysis result shows that DXY is likely to appreciate by about 0.5%. USD weakness is likely to be more significant against JPY, as JPY is likely to be used as a hedging tool against Trump risk. USD/JPY appreciation around 1.5% is likely. USD/JPY is likely to test 105 relatively quickly and further appreciation is likely into the year-end, as lower volatility after the election should encourage Japanese investors to take more FX risks.

Low-yielding currencies (e.g., EUR and CHF), are also estimated to underperform, under the baseline scenario. Unwinding of relative safe haven flows would put downside pressures on EUR and CHF against USD. Our estimate shows GBP can be the underperformer among European G10 FX. Expected resumption of USD buying could lead the resumption of GBP weakness, amid elevated UK political risk.”