How Has Trump Impacted On The Global Forex Market?
Given the vitriol that Donald Trump has met with since becoming President, his election continues to be a complex and polarising mystery.
The situation is even more perplexing when you consider his controversial and protectionist stance on hot-button issues such as immigration, crime and foreign policy, which has angered citizens and in some instances gone close to violating the constitution.
In truth, the answer to Trump’s election lies largely in his stated commitment to reviving the U.S. economy. This was a message that resonated with swing voters in key states, but how has a Trump presidency impacted on the economy and financial markets so far?
Trump and Currency: Why the Greenback is Braced for a Decline
Perhaps the most interesting study is Trump’s impact on the U.S. Dollar (USD), and currency traders all over the world. Remember, the USD has served as the dominant global currency for generations, accounting for between 40% and 80% of all traders across various categories.
Typically, the USD is also one of the more robust and high-performance currencies, which is why Trump’s election caused such volatility in the forex market at the outset. During the campaign, Trump had briefly discussed his personal preference for a slightly weaker Dollar, and this revelation sent risk-averse traders diving for cover as the demand for the USD waned. Conversely, the stock markets boomed (after a marginal decline) immediately after the election of Trump, thanks primary to the new President’s business background, proposed tax cuts and lavish infrastructure plans.
Nothing lasts forever in the changeable world of politics, however, as the USD began to rise incrementally against the British pound (GBP) and the volatile Euro (EUR). While many lauded this as a victory for Trump and used it to reinforce the sustained strength of the USD, these increases had more to do with the ongoing spectre of Brexit and the impact that prolonged economic uncertainty has had on the value of UK and European currencies. In fact, the devaluation of the GBP has continued at pace, while it continues to trade in a narrow range that benefits the USD.
The assertion that Trump favoured a weaker USD had more than a ring of truth, however, and this has been borne out by his aggressive economic and foreign policy. After all, the President’s economic plan includes infrastructure spending of more than $1 trillion, as he looks to revitalise the nation and return manufacturing jobs to the U.S. This underpins his protectionist stance, with the ultimate goal being to restore America’s reputation as a leading exporter of goods and services.
A weaker dollar is central to this plan, however, as it reduces the cost of U.S. exports and makes them more competitive in the global marketplace.
The Last Word
We are already seeing evidence of a declining dollar, as the USD continues to slide against the Canadian equivalent (the CAD) ahead of the next Fed meetings in the U.S. This is a trend that we should expect to continue, as Trump gradually brings his economic plan and philosophy into life.
The good news is that currency traders have advanced warning of this, and can adapt their positions in order to profit from the depreciation of the USD. This is one of the fundamental rules of forex trading, which dictates that it is always possible to profit in a strained, volatile and even depreciating marketplace.