Dollar Plunges, Then Recovers Broadly in Volatile Post-Election Trade – WSJ

Whipsaw action across markets as victory for Donald Trump catches investors by surprise

The dollar shook off the big declines that immediately followed Donald Trump’s surprise victory with a strong rally on Wednesday, as investors took a more sanguine view of the president-elect’s economic policies.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, rose 1% to 88.89. The index had fallen as much as 0.8% overnight, as investors reacted to the unexpected election outcome.

A conciliatory victory speech by Mr. Trump and pledges by central banks to intervene in currency markets if necessary helped soothe worried investors, analysts said. “The market has started realizing there is a positive scenario: Trump may be able to implement fiscal stimulus measures he has been talking about, said Athanasios Vamvakidis, head of G-10 FX strategy at Bank of America Merrill Lynch. “In his speech, he focused on these policies rather than referring to trade protection.”

Stock-market investors took a similar view, lifting the Dow Jones Industrial Average more than 250 points.

The dollar was recently up about 1% against the euro, while it recovered from a nearly 4% loss against the Japanese yen to trade up 0.7%.

Many investors had feared some of Mr. Trump’s policy proposals, such as scrapping the North American Free Trade Agreement, would damage the U.S. economy and trading partners such as Mexico.

The Mexican peso, viewed by many as the currency most-vulnerable to the election outcome, remained near record lows on Wednesday. During a press conference, Mexican officials said they were watching market volatility but declined to take immediate action to stem the peso’s decline. The dollar was recently up 8.6% to 19.86 pesos, coming off gains of roughly 13% throughout the night.

Trading volume in the Mexican peso was about 63 times normal from 9 p.m. to 10 p.m. EDT on Tuesday, when polling results from key swing states began to point to a Trump victory. According to data from CLS Group, which settles the majority of the world’s currency transactions, overall volume during that period was nearly seven times normal.

The dollar climbed 2.5% against the South Korean won, and some traders said they suspect the country’s central bank stepped in to help tame volatility. The Bank of Korea declined to comment on whether it had intervened.

The U.S. dollar also hit a historical high against the Turkish lira and the Mongolian togrog.

Analysts had warned for months that investors were underprepared for the risks of a Trump presidency. Investors, bookmakers and pollsters saw Democrat Hillary Clinton as the favorite as U.S. voting wound down on Tuesday evening. When exit polls and early results showed Trump wins in key states, trades quickly reversed.

“When we came in Asia time, the market was telling us this was a done deal for Clinton,” said Kay Van-Petersen, global macro strategist, at Saxo Capital Markets in Singapore. “You’re seeing that unravel,” he said. Mr. Van-Petersen said all the TVs were on in his office and he was watching several websites for the latest updates on election results.

Mrs. Clinton conceded the election in the early hours of Wednesday morning in New York.

One of the biggest movements was in the Japanese yen, a favorite place of investors to stash cash in times of turmoil, which notched one of its biggest intraday moves since the day the U.K. voted to leave the European Union. Yen strength is seen as damaging to export-dependent Japanese corporations, whose products become less competitive abroad.

The yen weakened after Japan’s central bank and finance officials convened an emergency meeting while the government’s chief spokesman warned it will take “appropriate action” if the volatility continued.

Japan’s Chief cabinet Secretary, Yasuhide Suga,said recent foreign-exchange and stock movements have been “speculative” and “one-sided,” and he warned such swings could have “extremely negative effects on the stability of the economy and the financial system.”

“If such movements continue, the government will take appropriate measures,” he said.

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com, Laurence Fletcher at laurence.fletcher@wsj.com and Saumya Vaishampayan at saumya.vaishampayan@wsj.com