Dollar's Dominance: Trump's Economic Influence and Market Reactions

The U.S. dollar surged against major currencies, reaching a one-year high, driven by Trump's election win and rising Treasury yields. With the Republican Party controlling Congress, Trump's agenda fuels inflation expectations, affecting the Federal Reserve's rate policy, and boosting the dollar's strength in FX markets.

The U.S. dollar showcased its strength by reaching a one-year peak against major global currencies, spurred by heightened yields and Donald Trump's electoral success. For the first time since July, the greenback surged above 156 yen, while the euro dipped to its lowest since November 2023 at $1.05310, trailing by 0.32%. Meanwhile, sterling reached a four-month low against the dollar at $1.2630.

"The narrative in the FX markets revolves around the dollar and Trump," stated Nick Rees, currency strategist at Monex Europe. Trump's proposed policies, including higher trade tariffs and restrictive immigration measures, are anticipated to stoke inflation, ultimately prolonging the Federal Reserve's interest rate cut cycle in the long run.

These elements, along with projections of increased deficit spending and short-term economic growth, are elevating Treasury yields, thereby fortifying the dollar. The 10-year Treasury yield surged to 4.483%, the highest since July. With Republicans dominating Congress, Trump gains extensive leverage to advance his agenda. The U.S. dollar index against major currencies touched 107, its peak since early November 2023.

(With inputs from agencies.)