The financial markets already collect the effect of Donald Trump’s Republican victory in the United States presidential elections. The dollar responded to the election result with increases against practically all of the major market currencies. As an example, the dollar recorded its biggest rise this Wednesday against the euro since March 2020, with the outbreak of the coronavirus pandemic, and it advances almost 5% on average compared to the basket of large references of the market, which include the euro, the Swiss franc or the Japanese yen, among others.
With the clear victory of the Republican Party, the dollar is at its highest level of the year against the second most followed currency by the market: the euro. Donald Trump’s victory triggered a rising sovereign bond yields Americans and the strengthening of the dollar in the expectation of higher interest rates in the United States for a longer period of time. So, one euro is exchanged for 1.07 dollarsJune lows, which also implies that the euro will fall by 3% in 2024.
Although the euro was among the most affected by the results of the polls, it is not the only one affected. Compared to the almost 2% that the euro has fallen against the dollar, the crossing of the greenback against the pound sterling results in falls of 1.4% for the latter, the Japanese yen drops almost 1.7%the Swiss franc fell 1.5% and the Chinese yuan fell 0.9% to the exchange rate. Other smaller currencies registered a collapse this Wednesday, such as that of the Mexican peso, which sank more than 3% and dragged down Spanish financial entities exposed to this market. Thus, the dollar not only prevails in its best session in 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 prevails as a safe haven value in front of a gold retreating below $2,700 per ounce.
Although the market continues to consider a rate cut of 25 basis points by the United States Federal Reserve (Fed) this Thursday, according to the swaps In the OIS (Overnight Indexed Swap) financial markets, longer-term expectations hold back the possibility of seeing a steeper rate cut or a greater flexibility of the country’s monetary policy. “Given that Trump’s potential policy mix will likely be more inflationary than that of a Harris governmentthe Fed’s rate cut path would probably be less pronounced,” commented Claudio Wewel, currency strategist at J. Safra Sarasin Sustainable AM.
Among these measures would be greater immigration control on the border with Mexico and, mainly, the tariff war that could break out with China which would also have its consequences for the European economy. “Trump’s plan on tariffs and taxes should result in higher inflation and higher rates for longer periods of time,” commented JP Morgan investment manager Priya Misra for Bloomberg.
In addition, there is precedent for how Donald Trump is able to condition the evolution of the dollar. In his previous stage as president, between 2017 and 2021, the dollar fell compared to the levels found during Obama’s last term. “The safe haven characteristics of the dollar did not help against the uncertainty, rooted in the United States itself. In addition, the impact of new tariffs is uncertain,” commented Julius Baer.
Several analysis firms have advanced in recent weeks that a new strengthening of the US currency could occur. Deutsche Bank predicted that by the end of the year the exchange rate against the euro could reach $1.05. For its part, the market consensus that 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 recover ground until reaching a change of 1.11 dollars.
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