By Patrick Graham
LONDON (Reuters) - It took just over eight hours on Wednesday for currency markets to abandon the prevailing logic of the past month - that a Donald Trump presidency would be bad for the dollar against its major peers.
As forecast by dozens of bank and fund strategists, the greenback sank against the yen on the first signs, deep in the U.S. night, of a victory that they worry carries huge risks for global growth, security and trade.
Trading volumes against the euro reached 10 times the average for what is normally a high point of trading in Japan and Hong Kong, and Tokyo felt the need to caution speculators with the promise of an emergency meeting of officials to consider intervention.
But by the time daylight returned in New York, investors had pushed the dollar back to a loss of just half a percent on the day against the Japanese currency, and it was up against the euro and the franc.
A number of major banks including HSBC issued notes in London highlighting the immediate risks to the currency, yet none went as far as altering their longer-term forecasts.
French bank Credit Agricole (PA:CAGR) recommended buying the U.S. currency at 103 yen with a target of 110. Some bigger financial houses including Citi said they should have more to say over the next 24 hours.
The reticence spoke to far greater doubt over whether Trump's promised anti-establishment policy mix will do anything other than support the greenback, broadly by drawing capital back into the United States and administering economic pain elsewhere.
"Medium to long-term implications are extremely difficult to assess because there is plenty of uncertainty about the extent to which Donald's Trump program and pre-election announcements can be implemented," analysts from Unicredit (MI:CRDI) said in a note.
"(But) we are currently looking closely at developments and will likely put a number of our forecasts under revision."
FED PREMIUM EVAPORATES
Predictions the dollar would fall were based largely on the premise that the shock to global markets of a Trump victory would worry Federal Reserve policymakers next month enough to stay their hand on a long promised rise in interest rates.
As stock markets recovered, those thoughts were quickly evaporating, the priced likelihood of a move next month back above 70 percent - a level at which the Fed has been comfortable delivering in the past.
"The Fed rate hike is back on, even with Trump in the White House," said Kathleen Brooks, head of research with brokers City Index in London.
"Perhaps Trump's conciliatory tone in his victory speech has eased concerns, or perhaps markets have no idea how to price in his victory as we have no precedent. Either way, a mere 24 hours ago no one would have predicted such a calm market reaction."
George Saravelos, Deutsche Bank (DE:DBKGn)'s main strategist in London, saw no reason to back off forecasts that have consistently been among the most bullish on the dollar of the big global banks who have dominated currency trading in the past decade.
Like a number of others, he points to the potential for repatriation of corporate funds under a new tax holiday and Trump's promises of a boost to U.S. public spending.
"On the one hand you've got the positive fiscal story and then the corporate tax reform that might involve substantial repatriation," he said. "(That is) a pretty consistent message that is dollar positive."
UNTAXED OFFSHORE WEALTH
Both the Republican Trump and his Democratic foe Hillary Clinton had pledged before the election to take steps that would spur major U.S. companies to bring home more of the estimated $2.1 trillion in as-yet-untaxed income they hold offshore.
The Republican party's retention of majorities in the Senate and House of Representatives elections only makes more likely a repeat of George W. Bush's Homeland Investment Act, which brought in roughly $300 billion in funds a decade ago and drove the dollar higher.
There is still an argument over how much impact it would have on the currency now, particularly given that the accounts of Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and others suggest much of that cash is already held in dollars. But it has continuously popped up in currency market chatter since the summer.
"The fact that U.S. corporations hold larger cash piles offshore than ever is a reason why a new repatriation tax holiday could be a bigger boost for the dollar than in 2005," Morgan Stanley (NYSE:MS) said in a report in July.
"Though we stress the headline number for offshore earnings overstates the unhedged foreign currency amount, which is relevant for FX markets."
Against the yen, however, Deutsche's Saravelos offered a note of caution. If Trump is to impose trade barriers on China and others, he said, then capital currently lodged in those markets may seek the traditional security of Japan.
"We just have the yen doing better than everything else on the back of the disruption this is going to cause to Asia. We have the yen at 94 per dollar by the end of the year."