Upbeat dollar on Trump landslide victory

EURUSD slightly recovered to 1.0750 after nosediving to near 1.0700 in Wednesday’s European trading, the lowest level in four months. The major currency pair was hit badly as Republican Donald Trump took the Senate from Democrats after gaining an unconquered lead in key battleground states.

The Trump victory is expected to keep the US Dollar on the front foot.

The DXY Dollar Index, which gauges Greenback’s value against six major currencies, remains firm near 105.

Market action clearly shows that Trump’s victory is favourable for the US Dollar, which was already anticipated as the Republican candidate vowed to hike tariffs on imports and lower corporate taxes, a scenario that will boost overall business activity and labour demand, and escalate inflationary pressures.

However, the plot is unfavourable for currencies of economies like the Eurozone, the United Kingdom, China, and Canada, which are major U.S. trading partners. Donald Trump’s protectionist policies will directly impact the export sector of these economies, boosting the risks of an economic downturn.

Going forward, investors will also focus on the Federal Reserve’s monetary policy decision, which will be announced on Thursday.

According to the CME FedWatch tool, traders have priced in a 25-basis point (bps) interest rate cut, pushing rates lower to the 4.50-4.75% range.

This would be the second interest rate cut by the Fed in a row. However, the rate cut size will be lower than the 50 bps announced in the September meeting.

Investors will also focus on Fed Chair Jerome Powell’s press conference to get cues about the impact of Trump’s victory on the interest rate path and the inflation outlook.

(Source: OANDA)