The American dollar is strengthening against the backdrop of Donald Trump’s victory in the US presidential election.
On the day of November 6, the dollar index rose by almost 2%. The dollar index is based on the euro (57.6%), Japanese yen (13.6%), pound sterling (11.9%), and Canadian dollar (9.1%).
The main reason is inflation expectations (through the introduction of tariffs and increased demand for labor) and expectations of economic growth (the introduction of tax breaks, energy supply, reduction in corporate taxes).
On November 7, a meeting of the US Federal Reserve is scheduled to take place, where the US interest rate is expected to be reduced by 25 bp. (from 5% to 4.75%).
The last reduction occurred on September 18 and was greater than forecast (the rate was reduced from 5.5% to 5%, instead of the predicted 5.25%). The recent NFP report showed very weak job growth.
Thus, for now, the Fed is unlikely to deviate from the planned reduction in the discount rate, since there is still a lot of time before Trump’s inauguration.
Key American stock indices are also growing. The S&P 500 (reflecting the value of the 500 largest US companies) was up 1.2%, the NASDAQ (exclusively technology companies) was up 1.4%, and the Dow Jones was up about 1%.
Shares of Tesla, which openly supported Trump Elon Musk, rose 3.5%. Oil prices reacted to the preliminary election results with a slight fall – Brent fell by 1.2%. At the same time, the cryptocurrency that Trump promised to legalize is rising in price: Bitcoin grew by more than 9%, updating the historical record of $74 thousand, and Etherum by 7.2%.
An additional factor in the increase in the dollar index is the crisis in the Eurozone, which cannot recover from the production crisis. Imposing tariffs on foreign products would have a negative impact on the Canadian economy, which exports about 75% of its goods to the United States. Canadian economists are already predicting negative trends in the labor market.
These trends could shake Canada’s left-liberal government in the 2025 elections. A victory for right-wing forces in Canada is strategically necessary for the United States, since together they want to restore their position in the global hydrocarbon market.
As for the pound sterling, the protracted economic crisis in the UK is also fueling distrust in this currency.
At the same time, key American stock market indices rose significantly during the day due to certainty. Trump’s victory is undeniable, since he not only takes all the swing states, but also the Senate. In addition, he received a majority of American votes (51%).
But the chair under Fed Chairman Jerome Pavel, who was appointed by Trump himself in 2018, will clearly be shaken. The Fed does not want US inflation to exceed the 2% target in 2025, so the Fed will be forced to raise rates, which investors will not like very much.
Accordingly, there is the question of political pressure on the US Federal Reserve, since the Chinese goods replacement program requires cheap loans, not just tax breaks and 60% tariffs on Chinese goods.
Source: Racurs
I am David Wyatt, a professional writer and journalist for Buna Times. I specialize in the world section of news coverage, where I bring to light stories and issues that affect us globally. As a graduate of Journalism, I have always had the passion to spread knowledge through writing.