Dollar Hits 4-Month High Following Trump’s Election Victory
Market Reactions to Economic Forecasts and Fed Interest Rate Expectations
The dollar index (DXY00) has surged by +1.58%, reaching a 4-month high today. This increase follows the election of Republican candidate Donald Trump as President of the United States. Traders are worried that Trump’s low tax and high tariff policies may lead to inflation and slow down Federal Reserve interest rate cuts. Such conditions typically favor the dollar while negatively impacting gold prices. Additionally, the 10-year T-note yield has risen to a 4-month high, further enhancing the dollar’s appeal.
Market analysts now see a 99% chance of a -25 basis point rate cut at the upcoming November 6-7 Federal Open Market Committee (FOMC) meeting, while the likelihood of a -50 basis point cut stands at 0%.
Euro Weakens Amid Concerns Over U.S. Trade Policies
Against the backdrop of this dollar ascent, EUR/USD (^EURUSD) has dropped significantly—down by -1.89% and hitting a 4-1/4 month low. The soaring dollar severely burdens the euro, and Trump’s proposed tariff policies are raising red flags about potential slowdowns in trade and the Eurozone economy. Furthermore, easing producer price pressures within the Eurozone are seen as dovish for the European Central Bank (ECB), evident in September’s PPI, which fell to -3.4% year-over-year from -2.3% in August, aligning with expectations.
Adjustments to the October Eurozone composite Purchasing Managers’ Index (PMI) indicate an upbeat revision, rising by +0.3 to 50.0 from a prior estimate of 49.7. Conversely, German September factory orders outperformed expectations, increasing by +4.2% month-over-month against a forecast of +1.5%.
Comments from ECB Vice President Guindos warn that global economic output could decline, price pressures might increase, and established trade flows could be disrupted under Trump’s import tariff proposals made during his campaign.
Swaps indicate a 100% chance for a -25 basis point cut by the ECB at its December 12 meeting, with a possible 16% chance for a -50 basis point cut at the same event.
Yen Slides and Precious Metals Plummet
USD/JPY (^USDJPY) has risen sharply by +1.69%, with the yen tumbling to a 3-1/4 month low against the dollar. The recent uptick in T-note yields, coupled with perceptions of Trump’s expansionary, inflationary economic policies, has dampened the yen’s value. Furthermore, a +2% rally in the Nikkei Stock Index to a 3-week high lowered the yen’s safe-haven demand.
The Japan October Jibun Bank services PMI experienced a minor upward revision, climbing +0.4 to 49.7 from a previous report of 49.3.
In the precious metals arena, December gold (GCZ24) is down by -78.10 (-2.84%), while December silver (SIZ24) has declined by -1.630 (-4.98%). The election results have led to a significant decrease in both gold and silver prices, reaching three-week lows. This decline is fueled by rising dollar and T-note yields, along with long liquidation of precious metals. Additionally, a new record high for the S&P 500 has dampened demand for safe-haven assets.
Concerns about Trump’s tariff policies are expected to stifle global trade and economic growth, further reducing demand for industrial metals like silver. However, rumors of a -25 basis point Fed rate cut scheduled for Thursday provide some support for precious metal prices. Ongoing conflicts in the Middle East are likely to maintain a consistent demand for safe-haven investments, and recent positive revisions to the Eurozone PMI and strong German factory orders have also buoyed market sentiment for industrial metals.
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On the date of publication,
Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
