The U.S. dollar climbed to its highest point in four months on Wednesday after Donald Trump secured victory in the U.S. presidential election. This win has fueled expectations that his proposed policies on immigration, taxes, and trade could accelerate economic growth and inflation in the United States.
Trump defeated Democratic candidate Kamala Harris to regain the presidency, with Republicans also winning a majority in the Senate. Control of the House of Representatives remains uncertain, but Republicans currently hold the lead.
With a full Republican majority, the party may be positioned to enact significant legislative changes, potentially leading to more pronounced shifts in currency markets.
Trump’s stance on issues like immigration reform, new tariffs, tax cuts, and deregulation is anticipated to stimulate economic growth and inflation. These changes may limit the Federal Reserve’s ability to lower interest rates.
“Rising inflation could prompt the Fed to slow its rate cutting approach, which benefits the dollar,” explained Nikos Tzabouras, senior market expert at trading platform Tradu.
Nations like those in the euro zone, as well as Mexico, China, and Canada, may face potential tariffs that could hamper their economic growth, widening interest rate disparities with the U.S. and weakening their currencies.
Meanwhile, the euro is also weighed down by political turbulence in Germany. German Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner following ongoing disputes over economic policies. Lindner had reportedly suggested early elections as a solution to the budget deadlock, an idea Scholz had opposed.
Nick Wood, head of execution at MillTechFX, noted that Wednesday’s currency movements have been relatively steady, with traders holding lighter positions ahead of the U.S. election.
“It appears that some market players were maintaining minimal risk, which allowed them to be more deliberate in entering positions instead of reacting hastily,” he observed.
Over the long term, Trump’s stated preference for a weaker U.S. dollar could present challenges for the currency. During both his current and previous terms, Trump has advocated for a lower dollar to boost exports and domestic economic activity.
“His calls for lower interest rates could create a headwind for the dollar in the future as his policies take effect,” added Tzabouras.
Currently, the dollar index rose by 1.66% to 105.09, hitting a peak of 105.44, its highest since early July. The euro dropped by 1.78% to $1.0735, reaching a low of $1.0683. The dollar also rose 1.92% to 154.5 yen, nearing levels where Japanese officials have previously intervened to support their currency.
Japan’s chief cabinet secretary, Yoshimasa Hayashi, expressed concern, saying the government would monitor exchange rate movements closely to guard against speculative activity.
Trump’s pro cryptocurrency stance also provided a boost to bitcoin, which rose over 10% to a record high of $76,134.
The Federal Reserve is anticipated to lower rates by 25 basis points at the end of its two-day meeting on Thursday. Investors are looking for signs on whether the central bank will consider pausing rate cuts in December. Mixed signals from recent jobs data have led traders to adjust their expectations, with the likelihood of a December rate cut now at 71%.
Elsewhere, the Bank of England is expected to reduce rates by 25 basis points, while Sweden’s Riksbank may cut rates by 50 basis points. Norway’s Norges Bank, however, is expected to hold steady.
