It was always going to be the biggest news story of the year no matter who won, but the victory for Donald Trump in the US presidential election after a somewhat controversial campaign certainly secured this. Some people saw it as a shock for better or for worse, and even though he is yet to take office, Trump’s has already had a big influence on the markets.
Stocks and bonds fell, while others were worried about his effect on property prices. In the currency market, there was a lot of volatility in the run-up to and immediate aftermath of the election too, with Trump’s victory affecting many currency pairs in different ways.
Trump’s Economic Ideology
A lot of Trump’s campaign seemed to be focused around immigration, attacking his rival and saying things that got him plenty of press coverage. His economic policies were mentioned but didn’t get nearly as much air time as the more controversial elements of his campaign. This was partly because a lot of his economic ideology seemed unclear.
He called for tax cuts, infrastructure spending and bringing money back to the USA, with an undercurrent of more spending to achieve his goals. This has been attacked by many as a dangerous and ill-designed economic plan, and given that he has never held public office before, many are uncertain how much of it he means and will go through with.
Trump’s victory has introduced a lot of unpredictability and volatility to many financial markets, including the forex one, which has impacted upon various currency pairs.
The USD/CAD gained 1.3% in the week of Trump’s election and began trading at its highest level since February earlier in the year. Its ratio has shown gains in long positions and despite the volatility the news of Trump’s victory has introduced elsewhere, the Canadian dollar has remained relatively quiet.
However, a week on from the result and the Canadian dollar has posted a few losses and the USD/CAD currency pair was trading below the 1.35 line. With its manufacturing sales due to be released as well, the Canadian dollar is preparing for a further 0.2% drop, although depending on what the US does and Trump says it may not be as bad as predicted.
Safe Currency Pairs
During times of financial uncertainty there are a few currencies and forex pairs which always strengthen as they are viewed as safe haven options. However, the Japanese yen did not experience a surge, as the US dollar rallied in the week after Trump’s victory was announced. The Swiss franc did perform strongly on the back of volatile markets, though some of that could have been thanks to ongoing Brexit negotiations.
The prospects of an increase in US interest rates and subsequent inflation are suggesting that the yen could return to a high of ¥115 to the dollar, which haven’t been seen since February as well. A lot of risk remains, so traders could eventually flock to traditionally safe options like the yen in time.
The Pound and Euro
The British pound was one of the real winners from Trump’s victory. It broke the $1.26 barrier against the dollar in the Friday after the election and climbed against all its major currencies too. It had its best two weeks in eight years, partly due to Trump’s love of the UK and promise that it would be one of the first nations he would arrange a trade deal with.
It wasn’t as positive for the euro, which dropped to its lowest level for the year. At first the EUR/USD pair rose as the thought of an interest rate hike softened with Trump’s win. However, this soon turned around with news of a predicted interest rate hike, though other factors came into play as well.
Mexican Peso and the Russian Ruble
The Mexican Peso and Russian Ruble aren’t major currencies or part of the eight or so most popular major currency pairs, but they are important partners for the US dollar. Political tensions between the US and Mexico saw the peso experience a dramatic fall. For FxPro traders this does offer a good buying opportunity though, as it will expect to rally in the future.
Before the election the Russian Ruble made gains against the US dollar. Though much like with the pound, Trump has proclaimed his support for Putin which has seen the Ruble rally after his win too.
The election of Donald Trump as the next President of the United States has already seen a lot of action for major and some minor currency pairs. Future events are bound to see further strengthening and weakening of many currencies, from the predicted interest hike to Trump actually taking office and implementing his policies.
For all currency traders it is therefore important to stay on top of the financial and political news regarding the USA and its relations with the rest of the world in the coming few months.