On Wednesday, the U. S. Dollar received a major jolt after it emerged that formal impeachment proceedings were about to begin against the United States President Donald Trump. The political development of that sort almost always results in a loss of confidence in a nation, in its economy and finally in its currency.
Hence, it was not a surprise when the Dollar plunged following the impeachment news. Although it eventually recovered, fears still remain that the escalating trade tensions between the United States and China are going to threaten the stability of the dollar for the foreseeable future. On Tuesday, Nancy Pelosi, the House Speaker stated that a formal impeachment inquiry was going to be launched against Donald Trump. The inquiry relates to violations of the United States Constitution and the undermining of national security.
These are serious charges and considering the fact that elections in the U.S. are going to be held next year, it created a lot of panic in the currency markets. Analysts have stated that the development is going to affect the Dollar negatively, but when the market opened in Europe, it recovered. In that regard, it needs to be pointed out that the Dollar has been among the best-performing currencies this year and maybe, there is still a lot of optimism among currency traders regarding its immediate future.
Now the whole inquiry might not actually lead to impeachment or even a conviction since that would need two-thirds majority from the house. The house is controlled by the Republicans at this point, and hence, it is unlikely that it is going to lead to anything. However, markets do not like uncertainties of this nature and analyst at MUFG said as much. He said,
Heightened political uncertainty in the run-up to the election could further undermine the outlook for business investment and growth in the US, and pose some downside risks for the US dollar in the year ahead.