Donald Trump managed to withstand an amazing number of scandals. However, the latest issues refuse to move away. The recent Comey memo reports are of specific concern. According to the report, the President asked the FBI director to let go of an investigation into Michael Flynn’s business. This could amount to an attempt to obstruct justice, similar to what Nixon did in the 70s.
Update Dec. 1: Former NSA Michael Flynn will testify against Trump. This is a significant development that raises the chances of an impeachment.
An obstruction of justice is already criminal, extending beyond the prerogative of the President. Nixon was forced to resign and Trump could follow the same path.
What does this mean for the US dollar? So far, the greenback has been on the back foot. The focus on these severe scandals means that the Administration cannot promote the agenda that markets are longing for tax cuts, infrastructure, and deregulation.
But what if Donald Trump steps down? Here are three phases of a potential impeachment and the trade.
1. While Trump clings onto power – a weaker dollar
The Watergate scoop broke out in 1972 and Nixon resigned only in 1974. We are living in a faster age, but things may take time. Trump and his colleagues will probably fight and the story will drag on in the press, in Congress, and across the world.
During this period, we can expect the dollar to continue struggling. Markets hate uncertainty. Any kind of fiscal stimulus will be stuck and the greenback could continue undoing the late 2016 rally.
In addition, uncertainty about policy could keep potential investment on hold. The uncertainty could also result in cautious consumption by Americans, further slowing down the US economy. A drop in forward-looking consumer and business surveys such PMIs could turn out to be a self-fulfilling prophecy.
If things calm down, the dollar could gradually recover.
2. On Trump’s departure – extreme volatility
Assuming things will deteriorate and force Trump to abandon his post, we could see extreme choppiness. Uncertainty will reach its peak, but this may not necessarily result in a one-way move to the downside. Drops in the US dollar could be more common than rises, but the fast-clip of events around the resignation could result in air pockets, a lack of liquidity and wild moves.
Republicans currently control both the House and the Senate. An impeachment process would begin in the House and would require a two-third majority in the Senate. A more realistic scenario would be of pressure from Republicans on Trump to resign to stop the political damage.
First days of President Pence – a recovery
While losing the standard-bearer of the party is a huge political blow, Republicans will try to recover under President Pence. The current Vice President would be sworn in and will probably try to rebuild the party.
With many Republicans voters still loyal to Trump and the establishment against him, the process will take a long time. However, the Administration will enjoy relative stability. It is hard to see Pence behaving in a more erratic manner than Trump.
With stability restored, the dollar could begin the recovery. The day Pence is sworn in could mark the bottom for the US dollar. No, Pence may not attempt to bring on tax reform and infrastructure spending. Nevertheless, the relative calm and a functioning administration would be enough.
The eurozone’s problems were not solved when Draghi made the “whatever it takes” speech in July 2012. The recession continued and unemployment peaked only in 2013. But, it marked the bottom of the crisis and the bottom for the euro.
Trump’s disgraceful disappearance from the scene will likely mark the bottom for the dollar.
What do you think?Get the 5 most predictable currency pairs