Investing.com – The US dollar soared on Wednesday, on track for its biggest one-day gain since March 2020, as Donald Trump neared presidential victory while a Republican victory in Congress also looked likely.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 1.4% to 104.737, after previously rising to 105.237, a four-year high months.
The dollar rises as Trump nears return to the White House
Republican candidate Donald Trump declared himself the winner of the US presidential election earlier Wednesday, despite the race yet to be officially declared. He said the victory gives him a “strong mandate” to implement his various economic policies.
The Republican party has also won a majority in the Senate and appeared to be on track to win the House of Representatives as well.
A Republican victory in Congress offers Trump a much easier path to making major policy changes, with his tariff and immigration policies seen by analysts as inflationary and boosting the dollar.
“Trump trades are in full swing as the counting of US ballots continues,” ING analysts said in a note. “If the growing consensus for a Republican clean sweep materializes, we expect a prolonged period of dollar outperformance.”
The committee will also meet this week and conclude the meeting on Thursday. Markets have positioned themselves for another rate cut, this time by 25 basis points instead of September’s massive 50 basis point cut.
The euro is falling
In Europe, yields fell 1.5% to 1.0762, falling to their lowest level since early July, as a second term for Donald Trump as US president becomes more likely.
“The euro has proven to be the weakest of the G10 currencies overnight so far and you can see why,” ING added. “It is expected that Donald Trump will expand his trade war in his first term only from China more broadly in his second term. This at a time of stagnant growth in the eurozone and self-reflection – especially in Germany – about the future business model. Plans to export from the stagnation are no longer an option for the eurozone.”
This weakness in the euro comes despite the German services sector seeing a slight rebound in business activity in October, reaching a three-month high earlier Wednesday.
Interest rates rose to 51.6 from 50.6 in September, marking the first acceleration in growth in five months.
fell 1% to 1.2917, with another 25 basis point rate cut likely on Thursday, the second cut after the first cut in borrowing costs in four years in August.
Before last week’s budget, a cut was seen as a virtual certainty, but the larger-than-expected levels of government spending and borrowing that have come to light have created some uncertainty.
Asian currencies face Trump’s problems
rose 1.6% to 153.95, to a more than three-month high, as Trump’s victory drew closer.
The yen’s weakness also kept traders on edge about possible government interventions in the currency market, following recent verbal threats from ministers.
rose 0.8% to 7.1579, with the yuan retreating as Trump has promised to impose steep tariffs on China if he is re-elected, creating a tougher outlook for the yuan.
The focus this week is also on a meeting of China’s National People’s Congress, where the government is widely expected to approve more budget spending for the coming years.
fell 0.9% to 0.6579, with the Australian economy suffering due to Trump’s potential tariffs on China, given Australia’s trade ties with the Asian giant.
