As US election relief fades, Dollar gains, shares dip

The dollar rose and world shares turned lower on Wednesday as investors worried about the outlook for the U.S. and euro zone economies after President Barack Obama’s re-election.

Wall Street share futures, which had pointed to a higher open on relief over the clear election outcome, also reversed course as the fiscal problems of the United States and slowdown in Europe returned to haunt investors.

A preservation of the status quo in Washington after a bitter and expensive election campaign raised concerns about prospects for an early solution of the budget deficit problem.

In less than two months, tax cuts enacted under President George W. Bush expire and mandatory spending cuts begin to bite in what has been called a “fiscal cliff” that could crush the U.S. economic recovery.

“People will be refocusing away from the election to more important issues surrounding the fiscal cliff, and given that the status quo prevailed, the question is whether those same politicians will be able to reach a compromise before December 31,” said Valentin Marinov, Director of FX Strategy at Citi.

The dollar rose to a two-month high against a basket of currencies of 80.863 .DXY and also hit a high of 0.9468 Swiss francs.

The MSCI world equity index .MIWD00000PUS, which had climbed 0.25 percent in the wake of Tuesday’s election, lost this ground as trading progressed to be slightly lower at 331.46 points by midday in Europe.

The U.S. budget issue has already had a significant effect on business investment and spending, leading many in the markets to call for Democrats and Republicans in Congress to find a quick resolution before global growth is damaged.

“On the basis that the U.S. election has resulted in status quo in the White House and in Congress, politicians on both sides should now get on with resolving the issue of the budget deficit reduction,” said Richard Lewis, head of Global Equities at Fidelity Worldwide Investment.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell