Trump's Fiscal Policies Propel Dollar to New Heights, Squeeze Global Currencies

The possibility of a Trump return to the White House has strengthened the dollar, causing the Indian rupee to hit a record low. Market experts anticipate increased US fiscal deficits under Trump, leading to higher Treasury yields and impacting global currencies like the Mexican Peso, Japanese Yen, and Euro.

With the potential resurgence of Donald Trump in the White House, the dollar strengthened on Wednesday, driving the Indian rupee to an all-time low of 84.25 against the U.S. currency. This shift has intensified market expectations regarding substantial government expenditures should Trump secure the presidency, potentially inflating the U.S. fiscal deficit significantly.

Investors are bracing for Trump's economic policies, historically focused on robust domestic infrastructure investment, anticipating fiscal limits could be tested, leading to escalated borrowing demands. This outlook has already propelled the dollar to heights unseen since July, causing a slump in the Indian rupee, which later rebounded slightly to 84.18 during this report's filing.

Market analysts attribute the dollar's uptick to assumptions that a Trump presidency would vastly expand government spending to rejuvenate the economy. Such fiscal strategies might broaden the U.S. deficit, necessitating increased government borrowing. A surge in U.S. Treasury issuance to accommodate spending could raise Treasury yields, prompting investors to seek higher returns for the added debt, thus enhancing the allure of dollar-based assets.

The Mexican Peso has depreciated by 3% against the dollar, with the Japanese Yen and Euro also declining. Elevated Treasury yields not only augment the dollar's potency but exert pressure on global currencies, especially those from emerging markets like India. Ajay Bagga, a banking and market expert, remarked to ANI, "Trump Trades dominate markets. His success in North Carolina raises his chances of clinching 270 Electoral College votes. Trump's policies are expected to widen the U.S. fiscal deficit, elevating U.S. Treasury yields, propelling the dollar to July heights. The Mexican Peso has dropped by 3%, with the Yen and Euro also down. This is a classic Trump Trade scenario as markets perceive a high probability of Trump's victory."

India's rupee remains under continuous depreciation pressure amid dollar strength, presenting challenges for emerging markets. Several external factors, such as the tightening of U.S. monetary policy and global market volatility, contribute to this decline. While past interventions by the Reserve Bank of India in forex markets aimed to stabilize the rupee, additional measures may be necessary if the dollar's dominance persists without abatement. (ANI)

(With inputs from agencies.)