Dollar Surges Following Trump’s Election Win: Market Reactions
Dollar Index Hits Four-Month High on Inflation Concerns
The dollar index (DXY00) saw a significant increase on Wednesday, reaching a four-month high and finishing up by +1.58%. This surge was driven largely by Republican candidate Trump’s victory in the US presidential election. Concerns surrounding Trump’s proposed low tax and high tariff policies have raised fears of inflation, which may slow down the Federal Reserve’s plans to cut interest rates. Additionally, the 10-year T-note yield rose to a four-month high, further bolstering the dollar’s attractiveness through improved interest rate differentials.
Euro Declines as Economic Outlook Worsens
In contrast, EUR/USD (^EURUSD) dropped to a 4-1/4 month low, ending the day down by -1.77%. The primary factor for the euro’s decline was the dollar’s strength. Concerns about President-elect Trump’s tariff policies could negatively impact trade and the Eurozone economy also weighed on the euro. Furthermore, a decrease in producer price pressures within the Eurozone added to bearish sentiments, as September’s PPI fell to -3.4% year-on-year from -2.3% year-on-year in August, aligning with market expectations.
Interestingly, the Eurozone’s October composite PMI was revised higher by +0.3, adjusting to 50.0 from a previous estimate of 49.7. Meanwhile, German factory orders for September increased by +4.2% month-on-month, surpassing expectations of +1.5%.
ECB Vice President Guindos noted that if President-elect Trump follows through on his tariff plans, it could lead to weaker global economic output and disrupt established trade flows.
Swaps markets currently reflect a 100% probability of a -25 bp rate cut by the ECB at its December 12 meeting, with a 22% chance of a -50 bp cut.
Yen Weakens Amid Rising Yields
The USD/JPY (^USDJPY) pair experienced a sharp rise of +1.90% on Wednesday, with the yen hitting a 3-1/4 month low against the dollar. The uptick in U.S. Treasury yields diminished the yen’s appeal, as Trump’s economic policies are perceived to promote inflation rather than restrict it, reducing the likelihood of aggressive Fed rate cuts. Additionally, the Nikkei Stock Index advanced by +2% to reach a three-week high, further decreasing demand for the yen as a safe-haven asset.
The Jibun Bank services PMI for Japan in October was also revised upward by +0.4, now reported at 49.7 compared to the previous reading of 49.3.
Precious Metals Hit Hard as Dollar Strengthens
On Wednesday, December gold (GCZ24) dropped -73.40 (-2.67%) and December silver (SIZ24) fell -1.444 (-4.41%). Precious metals plunged to three-week lows as the dollar and T-note yields rose sharply following Trump’s election. Analysts noted that the rally in the S&P 500 to a record high diminished demand for safe-haven precious metals. Additionally, speculation is growing that Trump’s tariff policies may slow global trade, impacting the demand for industrial metals such as silver.
Despite the drop in prices, expectations of a -25 bp Fed rate cut on Thursday have provided some support for precious metals. Ongoing tensions in the Middle East continue to create a demand for safe-haven assets as well. Positive economic data, such as the upward revision of the Eurozone’s October composite PMI and stronger-than-expected German factory orders, could also encourage demand for industrial metals like silver.
More Precious Metal News from Barchart
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 are 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.
