Trump’s impulsive rhetoric and its impact on the currency markets

Trump’s campaign trail was filled with nauseating rhetoric on the nations, policies and business approaches he did not look.

He employed a hair raising combative approach to reign hell on those he despised, those he felt were less humans and policies he claimed meant everything wrong for the ordinary Americans.

As a ruthless capitalist himself, this posed a lot of questions for the critical thinkers but then he espoused himself to the ordinary, lowly to average educated citizen, who swallowed his rhetoric in endless copious amounts.

A Trump Presidency was ‘All Doom’

All noteworthy politicians, veterans, think tanks, economists, investors and scholars spared no words in opposing Trump. Statement after statement was spewed from newsrooms, boardrooms and panels with detailed explanation why the USA did not deserve the apocalypse of a Trump presidency, but the Americans made their choice, and the message was loud enough to reverberate across the globe.

Trump impact currency markets

Trump’s effect on the American economy

Trump’s pre-election poise was pro-US Dollar

With the sweeping changes and conservative policies he promised the electorate, Trump minced no words in promising a stronger American economy which would in turn translate to a stronger dollar. What he did not appear to care to mitigate was the impact that bashing other economies would eventually have on the dollar. Pre-election tension on the markets had seen the dollar experience lows in November but started gaining due to the new regime’s promise of a pro-business agenda. Political risk, which informs many investors, however saw the US$ drop 2.6% in January following Trump’s jibe that the currency was too strong. This led analysts to predict that the greenback would end at a significant low at the end of the current administration.

Protectionism means to weaken the US$ and reduce imports

A weakening dollar will mean stronger foreign currencies but will negatively affect importation. This is because goods from those other countries will be costlier and this fits perfectly well with Trump’s promise to strengthen domestic industries and create more jobs at home. His bashing of China’s currency manipulation also means to significantly reduce importation from the economic giant.

The Mexican peso has been the greatest victim so far

Trump has not minced words campaigning against manufacturing in Mexico for the US market. The country’s 80.3% of its exports target the US market and faces huge threats with the promised higher tariffs and the possible scrapping of the North American Free Trade Agreement (NAFTA). It experienced a 19% weakening in the pre-election period due to anticipated negative US-Mexico relations. The peso however gained a bit after the inauguration as Trump did not clarify how he was, after all, going to achieve his US-Mexico border wall.

The Russian Rubble has been the biggest winner

Trump has been seen as pro-Russia and has been openly supported by President Putin. He has made every indication that Russia poses no threat to the US economy and local jobs. Since the election the ruble has traded 7.7% higher from Trump’s election and inauguration. He has continued to warm up relation the US relations with Russia which are however starting to be affected by Trump’s missile attacks in Syria.

The Chinese yuan continues to weaken against the US$

The yuan was partly affected by Trump’s comments related to currency manipulation as well as its government’s own policies which are negatively affecting China’s economy. This was evident from the currency’s 7% weakening in 2016.

A Republican free reign would adversely affect currencies

The Republicans have majorities in both houses. This gives them the opportunity to bulldoze through policies which will definitely have Trump’s imprint on them. The promise of sweeping deregulation would allow more trade and allow currencies to respond according to demand and supply. The failure of the Republicans to repeal Obamacare has however given the global markets hope that not everything Trump says will majorly hurt economies.

The Trump effect needs a constant watch

Traders in forex will need to keep abreast with Trump’s famous tweets to make informed decisions if just for the short term. The CMC Markets website provides real time trends and useful analytical tools in forex movements for traders.