The financial markets experienced a seismic shift on Wednesday, with the US dollar soaring to levels not seen in two years and Wall Street poised for a significant rally. As speculation mounts that Donald Trump could reclaim the presidency, investors are eager to position themselves for what they anticipate will be a “high-octane” US economy characterised by higher growth and inflation.
Against a backdrop of heightened political uncertainty, the US currency surged, evidencing a strong response from traders re-engaging in “Trump trades.” This saw a dramatic upturn in currency values, with the dollar appreciated sharply against the euro, yen, and pound. The dollar index, which measures the currency against a basket of rivals, surged 1.4 per cent—its biggest one-day gain since November 2022.
The trigger for this market frenzy can be traced to Trump’s hypothetical plans to elevate tariffs and implement tax cuts. Investors are betting that such measures would spur inflation, complicating any anticipated interest rate cuts by the Federal Reserve. Fueled by these expectations, Wall Street began the day with strong premarket indicators: S&P 500 futures climbed 2.1 per cent, while the Nasdaq 100 rose by 1.7 per cent.
In this environment of fervent speculation, certain companies emerged as prime beneficiaries. Notably, Tesla witnessed a remarkable 13.3 per cent increase in pre-market trading, buoyed by the prospects surrounding its CEO Elon Musk, a vocal Trump supporter who has advocated for reduced regulatory pressures. Musk’s alignment with Trump has positioned Tesla uniquely as a frontrunner in the anticipated economic landscape.
As states continued to tally votes, Trump’s success in pivotal battleground states—namely Pennsylvania, Georgia, and North Carolina—emboldened investors. “The Trump trade’s back on,” noted Francesco Pesole, a currency strategist at ING. He elaborated that the markets appear to be bracing for a “red wave” scenario, where Republicans would potentially regain control of both houses of Congress, further amplifying dollar strength.
While the market’s enthusiasm is palpable, experts urge caution. Andrew Pease, global head of investment strategy at Russell Investments, warned that the euphoria may overlook potential challenges, such as the implications of renewed tariffs and a trade war reminiscent of Trump’s first term. “Investors are rightly enthused about potential plans, but must not ignore the risks involved,” he remarked.
In the world of cryptocurrencies, Bitcoin mirrored the broader market’s upswing, surging over 7 per cent and reaching a record high of $75,389 briefly, before slightly tempering its growth. Trump’s vocal pro-cryptocurrency stance has resonated with investors, positioning him as a champion for the digital currency movement in the United States. Coinbase, a cryptocurrency exchange, similarly saw a 14 per cent increase as market optimism escalated.
The response from global currencies was also telling. The Mexican peso, often scrutinised due to its vulnerability under Trump’s tariff policies, tumbled by 2.6 per cent. Meanwhile, the yen weakened 1.5 per cent, leading to an uptick in Japan’s export-driven markets, with the Topix index up 1.9 per cent. Contrastingly, Chinese markets suffered, as the Hang Seng index fell by 2.2 per cent amid apprehensions about renewed trade tensions.
Analysts like Samy Chaar, chief economist at Lombard Odier, foresee that a Republican victory could catalyse an economic boom characterised by expanding earnings and robust profit margins, particularly benefiting sectors like finance and defence. Yet, the prospect of renewed tariffs raises warnings of widespread economic repercussions, according to Ray Attrill, global co-head of forex strategy at National Australia Bank. Financial Times