The dollar rose Tuesday, and Asian equities showed mixed performances as investors considered the increasing possibility of another Donald Trump presidency after incumbent Joe Biden’s poor debate performance last week.
Speculation about a second term for the Republican surged following the Supreme Court’s ruling that former leaders have “absolute immunity” from criminal prosecution for “official acts” taken while in office but could still face criminal penalties for “unofficial acts.”
This decision comes as Trump faces criminal charges over his attempts to overturn his 2020 election loss to Biden, with the trial on hold while judges reviewed his immunity claims.
Bets on a second term for the controversial tycoon increased after Thursday’s debate, where Trump was widely seen as the winner, while Biden struggled through answers and stumbled over his lines.
This led to calls for Biden to step down due to concerns over his mental state. However, Democrats have pushed back and are reportedly planning a vote next month to formally make him the party candidate for the November election.
“These headlines and the reaction to President Biden’s first debate continue to suggest a Trump presidency is looking more likely at this stage,” commented Tapas Strickland at National Australia Bank.
Observers noted that the prospect of another Trump presidency spurred discussions of tax cuts and potential inflation spikes, raising yields and dampening hopes for interest rate cuts.
This, in turn, boosted the dollar against its main peers, pushing it to 38-year highs against the yen, putting Japanese authorities on alert after previous warnings of possible forex market interventions to support the yen.
The euro also softened slightly, though it held onto most of Monday’s gains from a relief rally after the far-right National Rally (NR) seemed unlikely to secure an absolute majority in the French legislative elections.
President Emmanuel Macron and his allies are now engaged in intense campaigning and negotiations ahead of Sunday’s second round of polls, aiming to prevent NR from gaining an absolute majority and control of the government.
Luca Santos at ACY Securities commented, “Based on current results, the two most probable outcomes are a hung parliament without an absolute majority or an RN cohabitation government. The high number of constituencies won by the RN, coupled with tight races between left and centre candidates, complicates strategic withdrawals and heightens the risk of an RN cohabitation government, which would be less favourable for the euro. Consequently, the euro’s current relief rally is unlikely to persist ahead of the second election round.”
Asian stock markets were mixed, with Hong Kong experiencing a rare surge after recent losses, while Tokyo, Shanghai, and Singapore also saw gains.
