Trump and the Impact on the Forex Market: Which Currencies Are Affected?

Donald Trump’s election as President of the United States has often had a significant impact on global financial markets, including the forex market, which is particularly sensitive to political, economic and geopolitical developments. Forex is the largest and most liquid market in the world, where currencies are traded in real time, and any global event, such as a presidential election, can generate volatility.

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In this article, we will analyze the impact that Trump’s return to the White House could have on the forex market and which currency pairs could see the most movement.

The Context of Trump’s Election

Donald Trump is known for his economic approach focused on economic nationalism and expansionary fiscal policy. During his previous administration, the focus on tax cuts, deregulation and a trade war with China had a profound impact on global currencies. Trump has also repeatedly expressed his willingness to keep the dollar weak to boost US exports, often criticizing the Federal Reserve for its monetary policies.

With his return to the presidency, one could expect a further push towards aggressive economic policies, such as tax cuts, fiscal stimulus and a greater emphasis on protectionism. This could have a knock-on effect on the US dollar and other related currencies.

Most Affected Currency Pairs

Below, we analyze the major forex pairs that could be most affected by Trump’s inauguration:

1. EUR/USD (Euro/US Dollar)

The EUR/USD, the most traded pair in the world, is likely to be one of the most volatile.

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Trump Effect: If Trump continues to push for expansionary fiscal policies, the dollar could weaken in the short term due to expectations of rising government debt. However, in the event of a more hawkish agenda from the Fed, the dollar could strengthen.

Geopolitical Focus: Any tensions between the United States and the European Union (related to trade tariffs or regulatory policies) could lead to a depreciation of the euro against the dollar.

2. USD/JPY (US Dollar/Japanese Yen)

The Japanese yen, considered a safe haven currency, will be strongly affected.

Trump Effect: An increase in global uncertainty or geopolitical tensions could strengthen the yen against the dollar. However, a rise in US Treasury yields could push the dollar higher.

Likely Scenario: Trump’s aggressive pro-growth policies could initially weaken the dollar against the yen, but a rise in US interest rates could reverse the trend.

3. USD/CNY (US Dollar/Chinese Yuan)

The trade war between the United States and China has been a central focus of the Trump administration.

Trump Effect: A return of protectionist policies, such as tariffs on Chinese goods, could lead to a devaluation of the yuan. This could push the USD/CNY pair to new highs, increasing tensions in the Asian markets.

Trader Focus: Traders will need to closely monitor Trump’s statements regarding trade relations with China.

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4. GBP/USD (British Pound/US Dollar)

The British pound will be influenced mainly by post-Brexit trade relations.

Trump Effect: If Trump takes a more hawkish approach in relations with the UK, a devaluation of the pound could occur. However, an improvement in Anglo-American trade relations could support a strengthening of the GBP against the dollar.

5. AUD/USD (Australian Dollar/US Dollar)

The AUD is often considered a proxy for global growth, given Australia’s dependence on exporting raw materials.

Trump Effect: Trade tensions between the US and China could hurt the Australian dollar. However, higher US infrastructure spending could support commodity prices and strengthen the AUD.

6. USD/CHF (US Dollar/Swiss Franc)

The Swiss Franc, another safe haven currency, is sensitive to global uncertainties.

Trump Effect: If Trump’s inauguration leads to political or economic instability, the CHF could appreciate against the dollar.

Thanks for reading this article, as always, if you have any questions, please feel free.

Sincerely,
Andrea Russo