Dollar Rallies Amid Haven Buying Fueled in Part by U.S. Politics

(Bloomberg) -- The dollar is cementing its status as a go-to haven currency, even as U.S. domestic events are helping sour risk sentiment among global investors.

As investors digested the account of a July call between President Donald Trump and his Ukrainian counterpart, which is central to an impeachment inquiry announced Tuesday, the greenback roared higher against all major currencies.

The Bloomberg Dollar Spot Index touched the strongest since Sept. 4 and is on pace for its biggest gain since March. The uncertainty around the impeachment fight weighed on equities early Wednesday, adding to the morning’s momentum for the greenback. A Trump remark suggesting a trade deal may be ahead helped stocks rebound, but the dollar ceded no ground.

The episode is the latest to underscore the currency’s resilience as trade friction weighs on global growth prospects. The greenback has outperformed most major currencies this year as investors look to the U.S. for the positive yields on its government debt amid sturdy growth.

The dollar remains “the central liquidity source for safe-haven flows,” said Adrian Helfert, a portfolio manager in Dallas at Westwood Holdings, which manages about $15 billion. “An actual impeachment would have broader implications that go beyond U.S. shores, especially given the potential impact on trade policy negotiations.”

The Bloomberg dollar gauge is up 1.6% this year and this month touched the highest since 2017. The strength has raised the president’s ire because it poses a headwind for U.S. exporters.

Despite Trump’s hints of optimism on trade, analysts are concerned about the inquiry’s impact on his agenda.

“The longer-term impact of impeachment needs to be seen in the context” of next year’s U.S. presidential elections, Adam Cole, chief currency strategist at RBC Capital Markets, wrote in a note to clients Wednesday. “Shorter-term, we would not be surprised to see markets trading rising risk of Trump’s removal as USD-positive.”

To contact the reporter on this story: Susanne Barton in New York at swalker33@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum, Randall Jensen

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