Emerging Markets Brace for Dollar Surge Post-Trump Victory

Following Donald Trump's U.S. presidential victory, the US dollar has surged, impacting global currencies and emerging markets. India remains somewhat shielded due to its lower dependence on China. However, potential 'FX wars' and currency volatility loom as China adapts its export model and the Fed shifts policy.

In the wake of Donald Trump's unexpected win in the U.S. presidential elections, the US dollar has gained significant ground against global currencies, delivering a substantial shock to emerging markets. Notably, nations across Asia have felt the impact, though India remains relatively insulated due to its reduced reliance on trade with China, as indicated in a recent report by Emkay.

The Emkay report underscores India's unique position among emerging market peers, highlighting its smallest exports-to-GDP ratio and minimal export share directed toward China. This strategic distancing renders India less susceptible to major shifts in Chinese demand, the report explains.

However, the evolving global economic landscape is not without challenges for India. Over the years, the nation's trade connections with China and broader Asia have intensified, indicating potential exposure to secondary economic tremors should China's growth falter further. With the Chinese yuan weakening alongside other Asian currencies, pressure on the Indian rupee is anticipated, led by regional currency shifts.

A looming threat, as identified by experts in the report, is the onset of 'FX wars'—a period of competitive currency devaluation aimed at maintaining global competitiveness as China transitions its export focus. This potential depreciation could likely lead to increased volatility in the foreign exchange markets.

Adding to the uncertainty, the strengthening US dollar, bolstered by both Trump's election and a strategic shift in the Federal Reserve's policy, complicates matters. The U.S. economic reforms and proactive monetary policy, including a pivotal 50-basis-point rate cut, have rendered the dollar increasingly appealing to global investors.

Though Trump's victory supplied immediate buoyancy to the dollar, the global currency markets face unprecedented complexity. With Asia's economic pressures and currency recalibrations underway, the risk of a deepening FX war merits heightened vigilance as the world navigates shifting trade and currency paradigms. (ANI)

(With inputs from agencies.)