The House voted to impeach President Trump for a second time.
Focus is now on the Senate, but there won’t be a vote before next Tuesday, and more likely after Biden’s inauguration next Wednesday.
The potential for further violence has Washington worried, and the USD exchange rates could remain bid under the riskier environment.
Mixed markets on Thursday reflect the variety of conflicting drivers at play in early 2021. The FTSE is leading the charge higher by +0.7%, buoyed by Brexit resolution and rapid vaccine roll out. The UK also has a stable government, which is more than can be said of the US and Italy at the moment. This has allowed the British Pound to make gains against both the Euro and the USD in recent sessions and EURGBP is trading below 0.89 towards the 0.886 support area. Weakness is most visible in the US Tech stocks, pressured by a backlash over too much power and possible Biden regulation further down the road. Data is light all week and perhaps the biggest story on Thursday is the impeachment of President Trump. This has yet to have much market impact so far, but the situation could boil over in the week before Biden’s inauguration and Washington DC is preparing for more unrest.
Politics in Play
With President Trump now barred from Twitter, Facebook and Youtube, he has lost his main outlets of communication and much of his power. He has also been ostracized from political and business associates and the with dwindling influence it seems the main markets are looking past Trump and towards a Biden administration and its promise of renewed fiscal expansion. Even so, Big Tech and social media companies are coming under fire from all sides as Trump supporters and even some Democrats take issue with restricting free speech. Facebook is down over 10% in January and Twitter nearly 15% as many have migrated to other platforms.
While Trump has lost his voice, his supporters can gather and have an influence on a variety of issues. This is perhaps the worry for markets over the next week as the capital gears up for Biden’s inauguration and pushes ahead with impeachment hearings against Trump for the second time. This has already passed a vote in the House and now needs to go to the Senate, although the exact timing for this has not been given. Senate Republican leader Mitch McConnell has said already that no vote could begin until the Senate was scheduled to be back in regular session next Tuesday, and it is likely to come after Wednesday and Biden’s inuagoration. Here’s what happens next according to Reuters:
“Under the Constitution, impeachment in the House triggers a trial in the Senate. A two-thirds majority would be needed to convict and remove Trump, meaning at least 17 Republicans in the 100-member chamber would have to join the Democrats.
Even if Trump is already out of the White House, conviction in the Senate could lead to a vote banning him from running again.”
With less than a week till Biden is in the White House, it seems the main point of the impeachment proceedings are to ban Trump from running again. This would further enrage Trump supporters, and the potential for more riots has led to tight security measures in Washington DC. This could be a positive driver for the USD, which bottomed on the day of the last riot and has held onto the majority of its gains. Other factors are at play too, of course, but a riskier climate benefits the USD as a safe haven play.
Several headwinds are likely to keep the USD in check and the Euro has its own political pressures thanks to the Italian government. Negative real rates in the US will also keep USD buyers from chasing prices higher as the combination of rising inflation and the Fed Fund Rate at zero is not an attractive proposition over the long-run.