How Donald Trump’s Presidency Will Affect the U.S. Dollar

The United States presidential election results are officially in and Donald Trump is slated to become the nation’s 45 president.
And while the upset has spurred an enormous amount of discussion and dissent in the nation’s populace, investors across the world are keeping their eyes fixed on the market to see just how Donald Trump’s victory will affect the exchange rate of the U.S. dollar.

The Initial Impacts

During the presidential race, United States markets generally reacted favorably to news indicating the odds favored Hillary Clinton’s victory. In direct contrast, news favoring Donald Trump’s victory was accompanied by a drop in the markets. Foreign exchange strategists had predicted that the value of the U.S. dollar would then increase – almost by 2% according to some – if Mrs. Clinton won the presidency. Many also predicted a drop in the value of the USD with the election of Mr. Trump by around 1.3%. It was expected, then, that the U.S. dollar was going to take a serious hit after the results of the November 8 th election – but, surprisingly it ended up having a strong day overall.

International markets on the other hand experienced a sharp decline due to Mr. Trump’s election, but stabilized soon after. Overall, for an event that was predicted by many economists to be disastrous for the economy, Mr. Trump’s election actually seemed to have brought the U.S. markets and the dollar to a level of success that hasn’t been seen for quite some time.

What to Expect Next

Since the results of the presidential election were determined on November 8 the U.S. dollar hit an 11-month peak on November 14 and has strengthened at a rate unseen in more than three years. Part of this is due to a drop in many other nations’ currencies. The Mexican peso, for example, has been hit particularly hard by the election of Donald Trump to the presidency due in part to the prediction of weakened trade ties. The euro too has recently fallen due to various economic crises, making the U.S. dollar’s value jump even higher.

Another reason for the heightened value is that the market is reacting to the possible economic effects of President Trump’s upcoming move into office. With the promise of large tax cuts and a number of economic stimulus packages – not to mention the altering, severing, and tightening of many international trade policies – many are betting the result will be higher inflation, possibly predicting a drop in the value of the U.S. dollar. It even already has a name: “Trumpflation.”

The global assumption that the Federal Reserve will soon raise interest rates has also been called into question due to Mr. Trump’s victory in the election. As with other instances of market instability, the Federal Reserve has been known to pull back on planned interest rate changes. With this decision also being up in the air, the resulting rise or drop in interest rates could mean a world of difference to foreign investors and, as such, the value of the U.S. dollar.

As of now though, the true impacts of Mr. Trump’s policies have yet to be seen, since many of these policies have not been fully explained or elaborated upon. Once Mr. Trump’s economic policies become a bit clearer, the markets will respond accordingly, which could signal either the rise or fall of the U.S. dollar.