What we know so far
As of 7:00
a.m. UTC, most data providers, including ABC, CBS, NBC, and CNN, projected that
Donald Trump would become the next president of the United States. However,
even as Trump’s victory looks almost guaranteed at this point, it is the
balance of power in the U.S. Congress that will determine how successfully and
effectively the next president will be able to govern.
So far,
Republicans have won an extra seat in the Senate, but neither of the parties
has a clear advantage in the battle for the House of Representatives. Overall,
the counting of votes is still at a relatively early stage, and it could be
hours or even days before a final outcome is known. The contest will come down
to seven swing states, only three of which (North Carolina, Georgia, and
Pennsylvania) have been most likely won by Trump so far. Still, judging by the
latest market reaction, it appears reasonable to infer that global investors
are pricing in a decisive victory by Donald Trump.
What has been the impact so far
As of 7:00
a.m. UTC, the global markets were positioned for Donald Trump’s victory. U.S.
Treasury yields and U.S. stock benchmark indices rallied sharply, pushing the
U.S. Dollar Index (DXY) higher. Given that, it is no wonder other major fiat
currencies plunged, with EURUSD and GBPUSD down 1.82% and 1.32%, respectively,
while bitcoin hit a new all-time high of $75,410, as per Coinbase.
‘Such a dramatic shift in market sentiment is
explained by Trump’s official policies, or more precisely by the possible
effect these policies are likely to have,’ says Kar Yong Ang, a financial
market analyst at Octa Broker. ‘Generally,
it all boils down to Trump’s tax, immigration, and trade policies, which differ
greatly from what Harris proposed. The market perceives them as inflationary,
which is why we are seeing a bullish impact in the U.S. dollar.’
The United
States controls the world’s primary reserve currency, the U.S. dollar, so only
a few countries will not feel the effect of the latest U.S. presidential and
congressional elections. Major currencies are already experiencing the initial
impact. ‘Major currencies are falling
predominantly because the U.S. dollar is rising, but there is also a fear that
Trump’s policy on tariffs may hit their domestic economies,’ Kar said.
Indeed, the
primary reason for such a dramatic decline in EURUSD, for example, is that
investors fear that Trump’s policies on immigration and taxes will spur
inflation and force the Federal Reserve (Fed) to tighten its monetary policy.
This may expand the interest rate differential between the two economies,
favouring the greenback. In addition, Trump has repeatedly threatened to impose
tariffs on certain European goods like autos and chemicals. According to some
analysts, Trump’s proposed 10% universal tariff on all U.S. imports may erode
Europe’s GDP by up to 1.5% or about €260bn.
A similar
kind of impact may await the United Kingdom, where Trump’s blanket tariffs
would hit billions of pounds of U.K. automotive, pharmaceutical, and liquor
exports. It stands to logic that GBPUSD was down more than 1.3% today.
For similar
reasons, CNYUSD (Chinese renminbi / U.S. dollar spot rate) hit a 3-month high. ‘For the Chinese economy, the risks are
even greater, as Trump promised to
impose higher tariffs on Chinese goods. On top of that, under his
administration, tensions are likely to grow over the CNYUSD exchange rate,’
comments Kar Yong Ang, a financial market analyst at Octa Broker. Although the
currency policy of the future Trump Administration is unclear, in his interview
with Bloomberg, he had this to say: ‘We have a big currency problem because the
depth of the currency now in terms of strong dollar / weak yen, weak yuan, is
massive.
Interestingly,
the impact on the gold market has been relatively muted so far. As of 7:00 a.m.
UTC, XAUUSD was down 1.2%, but historically, it is not a significant swing,
especially given how much the U.S. dollar has strengthened. ‘Because Trump’s victory appears to be
decisive, it lowers the probability of social tensions in the U.S., which is
not a minor factor considering how fractious U.S. politics has become lately.
Thus, XAUUSD is selling off, but I think there are bullish risks ahead as
relations between China and the U.S. turn bitter,’ comments Kar Yong Ang.
Indeed,
Donald Trump will likely heighten the Sino-U.S. trade tensions, which is a
positive factor for gold in general. In addition, Trump’s massive tax cuts will
likely expand the U.S. fiscal deficit and may turn some strategic investors
away from the U.S. dollar and into gold and bitcoin. In fact, BTCUSD hit a new
all-time high on the news of Trump’s potential victory. He is seen as more
actively supportive of cryptocurrencies than Harris.
In the
short term, all the bullish dollar trades may temporarily reverse as traders
buy the dips in EURUSD and GBPUSD in hope of a technical rebound. In the long
term, however, the bearish pressure on these pairs will likely persist.
About Octa
Octa is an
international broker that has been providing online trading services worldwide
since 2011. It offers commission-free access to financial markets and a variety
of services used by clients from 180 countries who have opened more than 52
million trading accounts. To help its clients reach their investment goals,
Octa offers free educational webinars, articles, and analytical tools.
The company is involved in a comprehensive
network of charitable and humanitarian initiatives, including the improvement
of educational infrastructure and short-notice relief projects supporting local
communities.
Since its foundation, Octa has won more than
70 awards, including the ‘Best Forex Broker 2023’ award from AllForexRating and
the ‘Best Mobile Trading Platform 2024’ award from Global Brand Magazine.