The somewhat surprise election of Donald Trump as the next President of the United States of America, has already sent shockwaves around the world. From protests on the streets to huge falls in certain stock markets, it has had a big effect on many things across the planet. The markets reacted straightaway and there was plenty of volatility affecting many currencies, including many major European ones.
The Immediate Impact
There were many fears that a Trump victory would lead to a massive Wall Street sell-off and the US Dollar would plummet in value. In the run-up to the election the dollar did drop in value as popular safe havens such as the Japanese yen and the Swiss franc benefited, but since the result was announced the impact from a more surprising result hasn’t been as devastating as many feared.
Overnight as Trump’s victory was announced the US dollar fell 4% in trading as the euro and pound sterling made gains. It introduced plenty of volatility into the currency market however, the dollar soon rallied a couple of days later and posted numerous gains with the stability provided by knowing who the next President will be.
Pound to US Dollar
For UK forex traders it was mostly good news. The pound rose against the US dollar in the immediate aftermath and has continued to make gains a few days later, even with the rising demand for the US dollar now that many traders have seen that a Trump victory is not immediately destroying the US currency.
There were other factors at play that helped the pound rise, including a resilient British housing market. Trump’s indication that Great Britain will be one of the first nations he hopes to secure a US trade deal with when he takes office has only helped strengthen the pound’s value.
Given the pound’s strong performance against the dollar, it also posted some of its best performances against the euro as well. This European pairing is delivering its best exchange rate since the end of September, largely thanks to the expectations of higher inflation levels across the continent in reaction to Trump winning the presidency.
Promises of a US trade deal for the UK are predicted to increase a surge in money supply for the UK, pushing up inflation and eventually interest rates. With many traders pre-empting this, it has seen the pound rise, especially against the euro as one of its main partners.
The ECB has been highly optimistic throughout the election, with positive forecasts for the euro into 2017. As voting got underway and the result was announced the euro experienced a spike to its highest levels in two months against the US dollar, before falling back down to less than 1.09.
These two currencies have been trading tightly since then, meaning the risk and reward for many investors is too narrow to make it worth it, at the time or writing. The euro has been in high demand elsewhere though, performing well against other European currencies besides the pound and Swiss franc.
Trump’s impact as the President-elect has only just begun though, and there are many events in the future that will undoubtedly further affect European currency pairs. When he is officially sworn in and enters the White House it is likely to again affect the markets, with any action taken in his first 100 days and trade deals made set top affect the currencies of those nations.
While it is certain that Trump will be the next President of America, a lot of uncertainty remains as to how big an impact this will have on the US dollar and other currencies around the world. It will all depend on what action he chooses to take in the next four years.