Donald Trump looks to be heading towards the White House, leading to a volatile session in global markets. The dollar has surged, sending the euro and emerging market currencies down.
The euro slumped against the US dollar as Donald Trump declared victory in the presidential election. The currency dropped nearly 2 cents against the dollar to a four-month low at 8:40 am CET.
Meanwhile, futures are pointing towards a higher open in major European indices, including the pan-European Stoxx 600 and Germany’s DAX, mirroring movements on Wall Street.
Dollar surges, sending euro and emerging market currencies down
Financial markets are experiencing heightened volatility as the final results draw near, with the US dollar index surging to its highest level since July. This rise has placed downward pressure on other G10 currencies and emerging market counterparts.
The dollar index jumped 1.5%, marking its biggest surge since March 2020, when the pandemic began. Weakness was especially apparent in the euro, as factors such as higher tariffs, anti-climate policies, and potential interest rate hikes in the US threaten the Eurozone’s economic stability.
A trade conflict between the US and the EU could exacerbate the region’s economic outlook, likely prompting the European Central Bank to accelerate rate cuts.
Meanwhile, escalating geopolitical tensions between the US and China could further hinder Chinese economic growth and prolong sluggish consumer demand, impacting European exports to China, particularly in the luxury goods sector.
“Europe certainly isn’t reacting to the news particularly well, with investors seemingly somewhat spooked by the potential for tariffs and greater geopolitical uncertainty that a Trump presidency is likely to bring,” wrote Michael Brown, Senior Research Strategist at Pepperstone, in an email.
Among emerging market currencies, the Mexican peso dropped nearly 3% against the dollar, marking its lowest level in two years, as traders hedge against the increasing likelihood of trade barriers between the US and Mexico. Similarly, the Chinese yuan fell more than 1% against the dollar due to concerns over future US-China trade relations.
“A Republican clean sweep is possibly bad news for the rest of the world. While many of the Republican policies are stimulatory and popular in the US, the promise to immediately erect trade barriers is a global concern,” said Michael McCarthy, Market Strategist and Chief Commercial Officer at Moomoo Australia, to Euronews.
Wall Street rallies, bonds extend losses, Bitcoin hits an all-time high
US stock markets are also rallying on the back of a projected Trump win, with the S&P 500 nearing a new high.
Trump’s pledges to cut corporate taxes, relax fiscal policies, and roll back regulations are likely to boost liquidity and benefit stock markets.
However, these policies raise concerns over heightened inflation, increased government debt, and a larger trade deficit, which could push the Federal Reserve to raise interest rates, potentially impacting stock markets negatively.
Government bonds are extending their losses as markets anticipate higher inflation and interest rates in the United States. The “Trump Trade” has significantly influenced the rise in US Treasury yields, with expectations that his policies will drive inflation upwards, encouraging the Fed to ease the pace of rate cuts. Bond yields, particularly on shorter-term notes, often reflect market expectations for interest rate changes.
Bitcoin has also surged to a record high above $75,000 (€68,847) as the Trump Trade continues to fuel the cryptocurrency rally. Trump’s commitment to positioning the United States as “the crypto capital of the planet” has further driven Bitcoin’s rise, as it gains traction as a potential global financial force.
The price of gold slumped as the need for hedging election risks continued to diminish. Spot gold price fell $15 per ounce to a two-week low.