July 2, 2024 — The U.S. dollar strengthened on Tuesday, reaching 38-year highs against the Japanese yen, as investors weighed the implications of a potential second term for former President Donald Trump following last week’s contentious debate performance and recent Supreme Court rulings.
Dollar and Yields Surge
The dollar’s rise came amid speculation about the possibility of Trump winning a second presidential term. This speculation was fueled by the Supreme Court’s recent decision affirming that former presidents have “absolute immunity” from criminal prosecution for “official acts” taken while in office, though they can still face penalties for “unofficial acts.”
The court’s ruling has significant implications for Trump, who is currently facing criminal charges related to his efforts to overturn the 2020 election results. The trial had been temporarily suspended while judges evaluated his immunity claims.
The prospect of a Trump presidency has also stoked expectations of potential tax cuts and increased inflation, contributing to a rise in U.S. Treasury yields and diminishing hopes for future interest rate cuts. This shift in expectations pushed the dollar to its highest level against the yen since 1986, prompting Japanese authorities to consider potential interventions in the foreign exchange market.
European Currency and Political Uncertainty
The euro experienced a slight decline, though it held onto most of its gains from a relief rally on Monday. The rally followed news that the far-right National Rally (RN) party in France was unlikely to secure an absolute majority in upcoming legislative elections, reducing fears of a political upheaval in Paris.
However, Luca Santos at ACY Securities warned that the euro’s relief rally might be short-lived. “Based on current results, a hung parliament or an RN cohabitation government is increasingly likely, which could be less favourable for the euro,” Santos said.
Asian Markets Exhibit Mixed Performance
Asian stock markets presented a mixed picture. The Nikkei 225 in Tokyo climbed 1.1% to close at 40,074.69, marking its highest level since April. The Hang Seng Index in Hong Kong also saw a modest rise of 0.2%.
Conversely, other major Asian markets experienced declines. Sydney, Seoul, Wellington, Bangkok, Taipei, and Manila all fell, while markets in Shanghai, Singapore, Mumbai, and Jakarta posted gains.
Global Market Overview
Here are the key market figures from around 0715 GMT on Tuesday:
- Tokyo – Nikkei 225: UP 1.1% at 40,074.69 (close)
- Hong Kong – Hang Seng Index: UP 0.2% at 17,758.48
- Shanghai – Composite: UP 0.2% at 2,997.01 (close)
- London – FTSE 100: DOWN 0.4% at 8,133.46
- Euro/dollar: DOWN to $1.0728 from $1.0743 on Monday
- Dollar/yen: UP to 161.67 yen from 161.46 yen
- Pound/dollar: DOWN to $1.2633 from $1.2648
- Euro/pound: UP to 84.94 pence from 84.92 pence
- West Texas Intermediate (WTI): UP 0.1% at $83.50 per barrel
- Brent North Sea Crude: UP 0.2% at $86.81 per barrel
- New York – Dow: UP 0.1% at 39,169.52 (close)
Outlook
Market analysts are closely monitoring political developments in both the U.S. and Europe, as well as the ongoing debates over economic policies and foreign exchange interventions. The evolving situation could lead to further fluctuations in currency and equity markets in the near term.