The first year anniversary of the most shocking U.S. election night in recent memory is just around the corner. On 8 November, 2016, former reality TV star and real estate mogul Donald Trump defied all odds (and most polls), and became America’s 45th President-elect. With this inconceivable win, the U.S. – and, by extension, the rest of the world – officially entered what the history books will refer to as ‘The Trump Era’. The chapters that will no doubt interest forex traders, investors and economists at large will be the ones on the so-called Trump Trade, writes Nikola Grozdanovic, FXTM Senior Staff Writer.
The Trump Trade was quickly coined as a term that defines the new president’s sway over the financial markets, something that was felt before he was even sworn in. When news broke of Hilary Clinton’s defeat, the Dow Jones fell by 800 points, and the U.S. dollar plummeted. Then Trump delivered an uncharacteristically humble speech, and the USD immediately stabilised while the stock market surged by triple digits.
Once he was officially sworn in to office on 23 January, the Trump Trade continued to dictate matters in the markets. When he branded China as currency manipulators, the markets responded with a steep USD sell-off. When his top trade advisor, Peter Navarro, accused Germany of undervaluing its currency as a way to take advantage of the U.S. and other trading partners, the dollar index (USDX) was knocked down by 0.4% thanks to a resurgent euro.
In fact, there is a strong argument to be made that the effect of Trump Trade has been felt by the dollar index throughout 2017. In seven months between Trump announcing his plans for the “biggest tax reform in decades”, and the actual announcement, the tax plan in late September, the USDX was undergoing its worst losing streak in 14 years.
Currency markets have also been stung by other Trump policies in 2017, most notably the president’s controversial healthcare bill. When it became obvious that it would struggle to pass Congress in March, and then when the Senate all but sounded its death knell in July, the greenback dipped as it became apparent that Trump’s anti-establishment style wasn’t impressing Washington. Currency traders and commodity investors alike turned their back on the USD and looked to traditional safe havens and alternative investments.
These domestic legislative battles, combined with Trump’s escalating verbal warfare with North Korea’s Kim Jong-un, neutered the Trump Trade effect during the summer months – as his Tweets and usual off-the-cuff rhetoric failed to make a big impact in the markets. It wasn’t until his tax plan – which promises tax cuts up to $6 trillion and a 15% decrease in the corporate income tax rate – that experts began to wonder if the Trump Trade is getting a second life. With new hope for companies based in the U.S., investors turned back around to the dollar, giving it a healthy 2.2% boost.
The geopolitical tension that has been steadily rising as a result of Trump’s protectionist attitude with foreign nations has also influenced the impact of the Trump Trade, especially in terms of gold. The yellow metal, traditionally the biggest winner during times of uncertainty, was meandering below $1,130 per ounce by the end of 2016. This year, it hit highs not seen since 2010, with some analysts predicting it will reach $1,400/oz. by the end of 2018. The Syrian air strike in April and Trump’s hatred of the Iran Nuclear Deal, which reached a new milestone on 13 October when Trump refused to certify Iran’s complicity, has also helped push oil prices up.
We must be careful not to give too much credit to Donald Trump when it comes to his influence in the markets, though. For example, recent boosts experienced by the USD don’t owe it all to Trump’s tax reforms. They have been just as affected by whispers of a more hawkish Federal Reserve chair replacing Janet Yellen, pending higher interest rates and healthy rises in U.S. producer prices.
Looking back at the year’s events and the rollercoaster ride the markets experienced, it’s hard to believe that it hasn’t even been a full year since Trump’s shocking win. Will the Trump Trade continue to have an impact as we edge closer to 2018? His legislation battles will no doubt continue, and the geopolitical atmosphere doesn’t appear to be simmering down any time soon. Only time will tell if the president’s influence in the markets was only a side-effect of his unpredictable win, or if it will continue as long as he’s in office.
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