Since Donald Trump's victory in the U.S. General Election of 2016, the sitting President of the United States (POTUS) has been a polarising and controversial figure. From alleged Russian collusion to unprecedented Twitter practices, constant criticism has been a central theme among political adversaries. While critique and open discourse are staples of U.S. politics, an actual removal from office or impeachment of a POTUS is rare.
On 24 September 2019, official impeachment proceedings were launched against President Trump. Spearheaded by the U.S. House of Representatives, allegations of international coercion prompted a comprehensive investigation of specific White House activities. The inquiry sent shockwaves through the American government, as well as markets around the world.
While political pundits studied the possible governmental ramifications, traders and investors speculated upon the fallout local to the equities, commodities and currency markets. As a general rule, uncertainty has an adverse impact on capital market stability―a Trump impeachment was sure to bring a collection of unpredictable financial consequences.
What Is Impeachment?
The Oxford Dictionary defines impeachment as "the action of calling into question the integrity or validity of something." As the term applies to the U.S. political system, it is the act of challenging the viability of a government official. This includes members of the Legislative, Executive and Judicial branches of government. If successful, impeachment proceedings conclude with the embattled official being removed from their governmental post.
According to the U.S. Constitution, impeachable offenses consist of "treason, bribery, or other high crimes and misdemeanors." Under the Constitution, the U.S. House of Representatives is granted the sole Power of Impeachment, meaning it is up to them to investigate and initiate proceedings.
However, before actually removing a government official from office, there are several steps to the impeachment process that must be completed:
- Inquiry: Impeachment proceedings are initiated by the House. An investigation is launched to determine whether grounds exist for the House to exercise its impeachment power.
- Recommendation: If probable cause is found by the House Judiciary Committee, an official vote on specific articles of impeachment is recommended to House members.
- Vote: The House conducts a vote on each article of impeachment.
- Trial: If the House votes to impeach on defined articles, a trial is then held in the U.S. Senate. The Chief Justice of the United States presides over the court.
- Convict/Acquit: The Senate renders a final verdict on the articles of impeachment. If convicted, the government official is removed from office.
Although the process is complex, impeachment inquiries being launched against government officials are not all too uncommon. However, against a sitting POTUS, there have been a total of 10 in U.S. history: John Tyler, Andrew Johnson, Grover Cleveland, Herbert Hoover, Harry Truman, Richard Nixon, Ronald Reagan, George H.W. Bush, Bill Clinton and Donald Trump. As of this writing (October 2019), only Johnson and Clinton lost impeachment votes in the House. Both were later acquitted of all charges by the Senate.
How Would A Trump Impeachment Impact The USD?
Historically speaking, the impeachment of President Trump is improbable and an outright removal from office is unprecedented. However, an official House inquiry was launched in September 2019, effectively making impeachment possible. If the House brings formal charges and votes to impeach, the fallout on the USD could be substantial.
The Trump impeachment inquiry was formally announced on the evening of 24 September 2019 by Speaker of the House Nancy Pelosi. During the subsequent 24 hours, the USD rebounded from a moderate initial shock to post positive moves against the forex majors. As uncertainty drove participation to the market, the USD was the beneficiary for the 25 September session:
- EUR/USD: The EUR/USD fell by 77 pips, losing 0.70% on the session.
- GBP/USD: Values of the GBP/USD fell by 1.14%, closing down 142 pips.
- USD/JPY: The USD/JPY rallied by 71 pips, settling the day up 0.67%.
- USD/CAD: Values of the USD/CAD rose by a modest 25 pips, closing up 0.14% on the session.
- AUD/USD: The Aussie fell by 50 pips, settling the day down 0.74%.
- NZD/USD: NZD/USD rates fell by 54 pips, closing in the negative by -0.86%.
- USD/CHF: The USD/CHF gained 62 pips, rallying 0.63% for the day.
- XAU/USD: Gold fell by $28.66, losing 1.87% on the session.
In the 24 hours following the impeachment inquiry announcement, the USD gained ground against all of the majors. In addition, performance versus the safe havens was robust, as indicated by a nearly 2% loss sustained by gold. Given the economic calendar for 25 September 2019, the forex action may be largely attributed to the impeachment inquiry announcement and statements from Trump addressing trade between the U.S. and China.
Two Major Political Issues To Consider
Accurately predicting the impact that a Trump impeachment will have on the USD is a monumental task. Fundamental factors such as the monetary policy of the United States Federal Reserve (FED) and economic performance regularly drive valuations significantly. However, there are two political issues that may give currency traders a reason to re-evaluate the prospects of the USD:
U.S./China Trade Negotiations
Many in the financial community have suggested that the threat of impeachment may motivate Trump to accept an expedient trade agreement with China. While this concept is speculative in nature, a resolution to the prolonged U.S./China trade standoff would likely create positive sentiment for the USD.
Ratification Of USMCA
According to political insiders, the chances of the United States-Mexico-Canada Agreement (USMCA) being ratified during impeachment proceedings is slim. A substantial delay in this area may boost international trade concerns and pose a threat to the dollar's stability.
Each of these geopolitical issues has the potential to impact U.S. economic growth and, in turn, the USD. In the event that Trump is impeached and removed from office, the U.S.'s stance in these matters will become unclear. Given this scenario, the impact on the USD is largely unpredictable.
What Does The Future Hold?
According to many experts on the U.S. political system, there is a decent chance that Trump will become the third POTUS to be formally impeached. The U.S. House features a Democratic majority of 235, with 197 Republicans, one Independent and two vacancies rounding out the 435-seat chamber. In the event a vote is split among partisan lines, Trump's Democratic opposition has enough support to approve impeachment articles.
However, the picture becomes blurred if a House vote sets up a Senatorial trial. If such a trial was to be conducted, a two-thirds majority must vote "in favour of" to convict the POTUS of impeachment charges. This may be a difficult mark to achieve, as the 116th Senate consists of 53 Republicans, 45 Democrats and 2 independents. Once again, assuming a vote is split on party lines, removing Trump from office is improbable.
While politics are certain to play a significant role in the future of the USD, the long-term ramifications of a Trump impeachment remain a mystery. Some economists argue that the removal of a pro-business POTUS will hurt equities and undermine the long-term strength of the dollar. Others maintain that a governmental upheaval may have only a moderate impact. In either case, there is a possibility of short-term volatilities and heavy forex participation that could significantly affect the USD as the process unfolds.
Trump Becomes First POTUS To Be Impeached Twice
On 13 January 2021, Donald J. Trump became the first POTUS to be impeached twice. In a little over 12 months' time, the U.S. House of Representatives filed Articles of Impeachment against Trump twice―each time voting to impeach. Even though the motions proved controversial, they passed the House of Representatives with little doubt.
The U.S. House of Representatives voted to convict on two charges, "Abuse of Power" (229/195) and "Obstruction of Congress" (228/195). In early February 2020, the Senate voted to acquit Trump of both charges, "Abuse of Power" (52/48) and "Obstruction of Congress" (53/47).
The U.S. House of Representatives voted to convict Trump on one charge of "Inciting an Insurrection" (232/197). The proceedings took place one week before the scheduled 20 January 2021 Inauguration of president-elect Joe Biden. As of this writing (15th January 2021), the Senate trial has yet to be conducted.
Market Impact Of First Trump Impeachment (Dec. 2019-Feb. 2020)
The first impeachment of Donald Trump had a modest impact on the markets. However, the uncertainty did hamper the performance of risk assets and its resolution led to a brief period of robust equities market pricing. During mid-February 2020, weeks ahead of the coronavirus (COVID-19) contagion going global, U.S. stocks rallied to all-time highs. For February 2020, the US 30 (29,409), US 500 (3398.3), and US 100 (9755.9) posted new records. (Past performance is not indicative of future results.)
On the currency front, the U.S. dollar (USD) held relatively firm throughout the entirety of 2019/20 impeachment proceedings. Record-low American unemployment rates, the ongoing U.S./China trade war and steady economic growth brought stability to the USD. From 2 December 2019 to 28 February 2020, the USD held relatively firm vs the world's major currencies. For the period, the EUR/USD (+0.01%), GBP/USD (-0.65%) and USD/JPY (-1.4%) were a few of the more notable pairs. (Past performance is not indicative of future results.)
While Trump's Senatorial acquittal removed nagging political uncertainty, the evolution of COVID-19 brought on a market panic during March 2020. Although equities and the USD held their ground during January and February 2020, the landscape rapidly shifted in March.
Market Impact Of Second Trump Impeachment (Jan. 2021)
In comparison to the first impeachment, January 2021's vote by the U.S. House of Representatives was a vastly different undertaking. Following the hotly-contested Election of 2020, a deep political divide gave rise to an unprecedented collection of events. On 6 January 2021, thousands of protesters converged on Washington D.C. in rebuke of Congress certifying the Electoral College vote of 14 December 2020. Amid the chaos, the U.S. Capitol was breached for the first time in more than two centuries as part of an attempted coup.
Within a week, the U.S. House quickly filed Articles of Impeachment and voted to convict POTUS Trump for "Inciting an Insurrection." However, the market impact proved to be minimal. Incoming president-elect Biden was to be inaugurated on 20 January 2021 and the change of administrations was already priced into the markets.
In fact, as Trump was being formally impeached for a second time, U.S. stocks traded flat. For the 13 January session, the DOW 30 (+1, +0.00%), US 500 (+13, +0.34%), and US 100 (+93.5, +0.73%) all posted slight gains. (Past performance is not indicative of future results.)
Similar to stocks, post-impeachment forex activity facing the majors was moderate. In the 48 hours surrounding impeachment number two (13-14 January), the USD experienced limited volatility. A few of the biggest movers for this period were the EUR/USD (-0.44%), GBP/USD (+0.16%), USD/CHF (+0.19%) and USD/CAD (-0.55%). (Past performance is not indicative of future results.)
Due to Trump leaving office on 20 January 2021, the timeline and mechanics of a Senate impeachment trial were vague. In addition, a post-administration Senatorial conviction was widely viewed as unlikely, but possible. If Trump were to be convicted while out of office, a negligible market impact would be likely. As of this writing, the charges against Trump have yet to be resolved.
This article was last updated on 21st January 2021.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…