In a stunning turn of events, the US presidential election has sent tremors through the financial markets as Republican challenger Donald Trump takes an early lead over Democratic Vice President Kamala Harris. With key swing states falling into Trump’s column, investors are scrambling to readjust their positions and brace for potential economic upheaval.
The Trump Effect: Dollar and Bitcoin Surge
As the election results began to favor Trump, the US dollar experienced a remarkable rally, jumping 1.5% against a basket of currencies. The greenback flexed its muscle against major rivals like the pound and euro. According to market analysts, a Trump victory is often associated with a stronger dollar due to his inflationary policies.
Matthew Ryan, head of market strategy at global financial services firm Ebury, explained, “The US dollar is trading higher against almost every currency in the world overnight on the news of the big outperformance in the polls from Donald Trump. Markets are positioning themselves for a comfortable Trump victory in the electoral college and a Republican-controlled Congress, which is key in determining the ability of the incoming president to force policy changes.”
Meanwhile, bitcoin reached a record high, surpassing $75,000 as crypto enthusiasts anticipate a more supportive regulatory environment under a second Trump administration. The world’s largest cryptocurrency by market cap soared over 8%, with other digital assets like ether following suit.
Bond Markets Reel as Yields Jump
In a contrasting move, US government bond prices tumbled, causing yields to spike. The yield on 10-year Treasury bills jumped 12 basis points to 4.41%, the highest level since early July. This suggests that traders are anticipating higher inflation and a ballooning fiscal deficit under Trump’s proposed tax cuts and spending plans.
The 10-year Treasury yield surged to around 4.45% on speculation Trump’s proposed tax cuts and other spending plans would increase the fiscal deficit, while possible tariffs could reignite inflation.
CNBC Report
Republican Congress Sweep Fuels Speculation
Beyond the presidential race, investors are closely monitoring congressional elections. The Republicans have already clinched control of the Senate, raising the prospect of unified government if Trump secures the White House. This scenario could pave the way for sweeping policy changes, including tax cuts, deregulation, and increased spending.
Stephen Innes, managing partner at SPI Asset Management, noted, “A Trump White House with a Republican-led Congress could bring a growth surge fueled by tax cuts, deregulation, and big spending—though we’d also likely see higher inflation, steeper interest rates, and a tilt towards trade protectionism. Equities and the dollar would likely rally at first, driven by optimism around corporate earnings.”
Warnings for the UK Economy
Across the pond, experts are sounding the alarm about the potential impact of a Trump victory on the UK economy. The National Institute of Economic and Social Research (NIESR) warned that if Trump follows through with his proposed tariffs, UK growth could be slashed in half.
- NIESR estimates UK inflation could rise 3-4 percentage points
- Interest rates may need to increase 2-3 percentage points to counter inflationary pressures
- Economist Ahmet Kaya: “The UK is a small, open economy and would be one of the countries most affected.”
Investor Sentiment Shifts as Uncertainty Looms
As the political landscape shifts, investors are grappling with the implications for their portfolios. A second Trump term, especially with Republican control of Congress, could usher in an era of protectionism and reignite trade tensions with China. This uncertainty is driving capital flows and reshaping market sentiment.
One Wall Street strategist, speaking on condition of anonymity, confided, “We’re seeing a flight to safety in the dollar and bitcoin, while riskier assets like emerging market currencies are being dumped. Investors are trying to navigate the potential for higher tariffs, geopolitical tensions, and inflationary pressures under another Trump administration.“
As the vote counting continues and the final outcome remains uncertain, the financial markets are poised for further volatility. Investors will be closely monitoring developments in key battleground states and any indications of legal challenges or recounts that could prolong the electoral process.
In the meantime, the seismic shifts in currency markets, bond yields, and cryptocurrency prices serve as a stark reminder of the profound influence US politics can have on global financial stability. As the world watches and waits, one thing is clear: the economic ramifications of this election will be felt far beyond America’s borders.
