Financial markets are already collecting the effect of Donald Trump’s Republican victory in the presidential elections in the United States. The dollar responded to the election result with gains against virtually all major market currencies. For example, the dollar recorded its strongest increase against the euro this Wednesday since March 2020, with the appearance of the coronavirus pandemic, and it advances by almost 5% on average compared to the basket of major references of the market, which include, among others, the euro, the Swiss franc or the Japanese yen.
With the clear victory of the Republican Party, the dollar is at its highest level of the year against the second currency most followed by the market: the euro. Donald Trump’s victory triggered a rise in sovereign bond yields Americans and the strengthening dollar expect higher interest rates in the United States for a longer period. SO, one euro is exchanged for 1.07 dollarsJune low, which also implies that the euro will fall by 3% in 2024.
Although the euro was among the hardest hit by the poll results, it is not the only one to be affected. Compared to the fall of almost 2% of the euro against the dollar, the crossing of dollar against the pound sterling results in declines of 1.4% for the latter, the Japanese yen falls almost 1.7%the Swiss franc fell by 1.5% and the Chinese yuan by 0.9% against the exchange rate. Other smaller currencies collapsed this Wednesday, such as that of the Mexican peso, which fell by more than 3% and dragged down Spanish financial entities exposed to this market. Thus, the dollar not only imposes itself during its best session on the foreign exchange market in more than four years (it would be on average at the highs of November of last year), but it marks a new panorama in which it also stands out as a safe haven in front of a gold falls below $2,700 per ounce.
Even if the market continues to envisage a rate cut of 25 basis points by the American Federal Reserve (Fed) this Thursday, according to the exchanges In OIS (Overnight Indexed Swap) financial markets, longer-term expectations dampen the possibility of a more pronounced fall in rates or a greater flexibility of the country’s monetary policy. “Given that Trump’s potential political mix will likely be more inflationary than that of a Harris governmentthe Fed’s rate cut trajectory would likely be less pronounced,” commented Claudio Wewel, currency strategist at J. Safra Sarasin Sustainable AM.
Among these measures are greater immigration control at the border with Mexico and, above all, the tariff war that could break out with China which would also have consequences for the European economy. “Trump’s plan on tariffs and taxes is likely to lead to higher inflation and higher interest rates for longer periods of time,” commented Priya Misra, investment manager at JP Morgan, for Bloomberg.
Furthermore, there is precedent for how Donald Trump is able to condition the evolution of the dollar. During his previous presidency, between 2017 and 2021, the dollar fell from the levels seen during Obama’s last term. “The safe haven nature of the dollar has not helped counter the uncertainty rooted in the United States itself. In addition, the impact of the new customs duties is uncertain,” commented Julius Baer.
Several analysis firms have suggested in recent weeks that a further strengthening of the American currency could occur. Deutsche Bank predicts that by the end of the year the exchange rate against the euro could reach $1.05. For its part, the market consensus which reflects Bloomberg considers that the crossing of the euro with the dollar will close the year above current levels and that by 2025 the euro would regain ground until reaching a variation of 1.11 dollars.
