06 Nov 2024

The UR/USD has experienced significant declines in anticipation of Trump's victory in the US presidential election.

The Federal Reserve is anticipated to implement another interest rate cut on Thursday, albeit at a reduced magnitude of 25 basis points.

Meanwhile, the Euro is lagging behind in performance across various markets due to heightened concerns regarding economic growth within the Eurozone.

The EUR/USD pair has made a slight recovery to 1.0750 after experiencing a significant decline to approximately 1.0700 during the European session on Wednesday, marking its lowest point in over four months. The major currency pair faced considerable pressure as Republican candidate Donald Trump appears poised to secure the Senate from the Democrats, with the Grand Old Party (GOP) establishing a substantial lead in critical battleground states, as reported by The Associated Press. The agency indicates that Trump is nearing the threshold of 270 seats, which is necessary for the party to form a government.

In parallel, Trump has proclaimed victory over his Democratic opponent, Kamala Harris, according to Sky News.

The prospect of a decisive victory for Trump bolsters the US Dollar (USD). The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, has surged to nearly 105.30. Market dynamics clearly indicate that Trump's potential victory is advantageous for the US Dollar, which was already expected, given that the Republican candidate has pledged to increase tariffs on imports and reduce corporate taxes. This scenario is likely to enhance overall business activity and labor demand while intensifying inflationary pressures.

The current situation presents challenges for the currencies of economies such as the Eurozone, the United Kingdom, China, and Canada, all of which are significant trading partners of the United States. The protectionist measures implemented by Trump are expected to have a direct effect on the export sectors of these economies, thereby increasing the likelihood of an economic downturn.

Looking ahead, market participants will be attentive to the monetary policy decision from the Federal Reserve, which is set to be announced on Thursday. The CME FedWatch tool indicates that traders are anticipating a 25-basis point interest rate reduction, which would lower rates to a range of 4.50%-4.75%. This would mark the second consecutive interest rate cut by the Fed, although the magnitude of this cut is expected to be less than the 50 basis points reduction announced in September.

Additionally, investors will be keenly observing the press conference held by Fed Chair Jerome Powell for insights regarding the implications of Trump's victory on the trajectory of interest rates and the outlook for inflation.

Daily digest market movers: EUR/USD is punished by upbeat US Dollar and weak Euro

• EUR/USD faces severe selling pressure due to the US Dollar’s out performance and the Euro’s (EUR) sharp depreciation against other major currencies. The outlook of the Euro has weakened as market participants expect that the implementation of Trump’s protectionist policies will significantly damage European economic growth.
• According to the Dutch bank, Trump's tariffs would shave approximately 1.5 percentage points off European growth, translating to a potential €260 billion economic loss based on Europe's estimated 2024 GDP of €17.4 trillion.
• Should Europe's growth falter under Trump's tariffs, the European Central Bank (ECB) may be compelled to respond aggressively, slashing rates to near zero by 2025, according to Euro news.
• Trump’s victory would likely force the ECB to cut its Deposit Facility Rate by a larger-than-usual size of 50 bps in its next monetary policy meeting in December. This would be the fourth interest rate cut by the ECB this year.