• Dollar Surge on Trump Momentum: As election results favor Trump, the dollar rallies, with expectations of a Republican “red wave” boosting confidence in U.S. economic prospects.
• Broad FX Market Impact: Most G10 currencies are down against the dollar, with the Canadian dollar holding steadier due to anticipated trade benefits under Trump policies.
• Euro Vulnerability: The euro weakens as European economies brace for an extension of Trump’s trade policies, potentially worsening the eurozone’s sluggish growth outlook.
• Pound Sterling Rebound: The British pound recovers slightly after a dollar rally, buoyed by UK fiscal stimulus and expectations of less severe trade impacts than in the eurozone.
• Market Focus on Fed Outlook: Investors await the Fed’s interest rate decision, anticipating a 25bp cut while preparing for a potential hawkish stance amid Trump-led fiscal policies.

USD: Dollar Climbs on Anticipation of Trump-Led Policies

With US election results rolling in, the “Trump trades” are driving the dollar upward. As counting continues, Donald Trump has already secured key states like Georgia and North Carolina and leads in other battlegrounds. According to The New York Times, Trump’s odds of winning exceed 95%, with a shift in the popular vote favoring Republicans. A Republican-controlled Senate is already locked in, and if Republicans win the House, markets anticipate a “red wave,” sparking reactions across financial sectors. However, the House race remains close, and the resulting split in Congress will play a critical role in shaping risk sentiment and the dollar’s trajectory.

In the FX market, the dollar is rallying broadly, with G10 currencies seeing losses of around 1.0-1.7%—except for the Canadian dollar, down less than 1%, buoyed by expectations of stronger trade ties under Trump’s economic policies. Treasuries reflect a bear steepening trend, with yields rising as investors expect an inflationary blend of fiscal and tariff-driven policies under a Trump administration. This has also triggered action in short-term USD swap rates, tied to a hawkish shift in Fed rate outlooks. A 25-basis-point rate cut by the Fed is widely expected, but further rate increases across 2025 are increasingly priced in, potentially reaching 4.0% by mid-2025.

If the red sweep materializes, we anticipate prolonged dollar strength and will revisit our FX forecasts after the election is called.

EUR: Europe Girds for Trump’s Trade Stance 2.0

European leaders are on edge as a Trump victory appears increasingly likely, raising fears of an extended trade battle. The euro is underperforming among G10 currencies, reflecting concerns that Trump will broaden his trade conflicts beyond China, hitting Europe’s export-dependent economy particularly hard. With Europe facing stagnant growth and introspection—particularly Germany—the region’s strategy to export out of stagnation is under pressure.

A Republican clean sweep could drag EUR/USD even lower if trade wars reignite. If Republicans fail to win the House, EUR/USD may face added headwinds, potentially dipping below parity by late 2025, especially if the ECB cuts rates further to offset economic strain.

While markets began factoring in a Trump win in October, EUR/USD is struggling around the 1.0550/1.0600 range, with upside capped near 1.0800. Meanwhile, the UK’s fiscal stimulus has kept GBP resilient against EUR, and EUR/GBP may press toward 0.8200. The Swedish krona is also depreciating in line with G10 trends, supporting expectations of a Riksbank rate cut.

GBP: Sterling Rebounds Amid Dollar Correction

The British Pound (GBP) has rebounded near 1.2935 against the dollar after hitting a low near 1.2830. The recent correction in the dollar has softened its rally slightly, with the Dollar Index (DXY) easing to around 104.90 from a high of 105.40.

Wednesday’s dollar surge followed Trump’s landslide win over Kamala Harris, lifting the greenback on hopes of trade tariffs and tax cuts that markets expect will bolster US investment, spending, and labor demand. Traders foresee these policies driving inflation and allowing the Fed to maintain a hawkish stance on rates.

As Trump’s victory reshapes expectations, investors are watching closely for cues from today’s Fed meeting, where a 25bp rate cut is widely anticipated.