"Trump Tests Positive, Likely to Strengthen Dollar Temporarily... No Sharp Market Turmoil Expected"

[Asia Economy Reporter Eunbyeol Kim] With U.S. President Donald Trump testing positive for the novel coronavirus (COVID-19), attention is focused not only on the future U.S. presidential election schedule but also on the potential impact on international financial markets. Foreign exchange authorities, including the Bank of Korea, are closely monitoring the effects this incident may have on exchange rates and financial markets.

Experts believe that President Trump's COVID-19 diagnosis will increase market uncertainty and fuel a preference for safe-haven assets, strengthening the dollar, a representative safe-haven currency. Although the extent of exchange rate fluctuations will depend on the severity of his symptoms, considering the increased likelihood of an agreement on U.S. domestic stimulus measures, the prevailing analysis is that the international exchange and financial markets are unlikely to experience sharp volatility solely due to the Trump diagnosis issue.

After President Trump tested positive on the 2nd (local time), on the 3rd in the New York foreign exchange market, the dollar index, which reflects the value of the dollar against six major currencies, rose 0.14% from the previous session to 93.71. Regarding Korea-related indicators, the offshore non-deliverable forward (NDF) market showed a weakening of the won (-0.3%, 1,167 won), and the foreign exchange stabilization bond spread (+0.4bp, 45.2bp) and credit default swap (CDS) premium (+0.9bp, 26.6bp) slightly widened.

Major investment banks (IBs) have evaluated that uncertainty related to the upcoming election and additional stimulus measures has significantly increased, and that market volatility could intensify depending on the president’s symptoms, so it is necessary to closely monitor the situation.

TD Securities stated, "The financial market reacted by avoiding risk immediately after President Trump announced his COVID-19 diagnosis, reflecting a weakening of expectations for additional stimulus measures that had grown over the past few days, and highlighting uncertainty about the election and the presidency." They added, "In the coming weeks, the market is expected to be mainly influenced by a preference for safe-haven assets (falling interest rates and stock prices, and a stronger U.S. dollar)." This means that when uncertainty in international financial markets increases, the dollar typically strengthens while interest rates and stock prices decline.

However, some expect President Trump to recover quickly due to improvements in COVID-19 treatments, and even if symptoms worsen, the possibility of severe market instability such as a sell-off of risky assets is considered low. Citibank noted, "Even during past events such as the assassination of President Kennedy and the shooting of President Reagan, the stock market initially showed a risk-avoidance reaction but quickly recovered."

This content was produced with the assistance of AI translation services.