Current developments and key facts
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.
Initial market impact and reactions
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 could widen the difference in interest rates between the U.S. and the Eurozone, making the U.S. dollar more attractive to investors. Additionally, Trump has previously mentioned the possibility of imposing tariffs on European goods such as automobiles and chemicals, which adds to economic concerns. 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. Analysts suggest that Donald Trump's policies could escalate trade tensions between the U.S. and China, which may increase the appeal of gold as a safe-haven asset. Additionally, his proposed large-scale tax cuts could potentially widen the U.S. fiscal deficit, prompting some strategic investors to move away from the U.S. dollar and into alternative assets like gold and bitcoin. Notably, BTCUSD reached a new all-time high following the news of Trump's projected victory, as he is generally perceived to be more supportive of cryptocurrencies compared to 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.
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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 various 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.
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In the APAC region, Octa received the ‘Best Trading Platform Malaysia 2024’ and the ‘Most Reliable Broker Asia 2023’ awards from Brands and Business Magazine and International Global Forex Awards, respectively.
