Immediately following the election and before the inauguration ceremony of America’s newest president, Forex market analysts predicted intense volatility in the value of the dollar as a knee-jerk reaction to the initial shock of Republican success. Uncertainty in Wall Street would affect financial markets across the world and a lack of confidence in the value of the dollar did initially lead to investors shifting their allegiances to more reliable currencies such as yen or gold. However, the predicted financial disarray did not fully materialise: the dollar strengthened following Trump’s rallying speeches which promised to boost the US economy significantly. The U.S Dollar index rose by over 1% immediately after the election result, suggesting the value of the dollar against major currencies in the rest of the financial world was on the rise.
Global Insecurity Keeps Dollar Afloat
The initial decline of the dollar might have had a stronger effect if it were not set against equally stifling political struggles affecting other major currencies. The euro currently faces uncertainty due to upcoming elections in Eurozone countries such as Germany, Austria and France while sterling still faces dramatic challenges arising from the fallout from Brexit. By the time of the inauguration in January, the dollar had weakened only slightly against most major currencies. The decline of the dollar was further cushioned by the corresponding fall in the pound due to negative data regarding December sales. By the end of December, Trump was voicing concerns about an overly strong dollar and the ensuing hike in US interest rates by the Federal Reserve led to a corresponding fall in the dollar index as you can find on the CMC Markets.
Advantages of Trump’s Presidency for Forex
Dollar Maintains Overall Increase
A fall in currency in itself can bring about relative stability, a distinct advantage for Forex traders especially those trading in binary options. Provided the currency is stable, a binary contract can become a fairly safe bet offering a high yield for savvy traders. While the dollar initially declined following election, it still maintained an overall increase from the previous three years and began to strengthen dramatically following Trump’s initial speeches promising tough financial policies. It took little insight for traders to accurately predict that the dollar would rise against most currency pairs in this scenario.
Removal of Limiting Regulations
Importantly, by abolishing the Dodd-Frank Act Trump has reopened the gates to allow greater forex trading and the possible return to the us of major FX firms. This will inevitably boost US forex trading and allow the markets to operate with greater freedom.
Trade with China
Trade has grown significantly in recent years in China leading to the current situation which has impacted negatively on businesses within the US. Trump’s policy may well reverse this impact and help to bring business back to the USA thereby further strengthening the dollar and establishing security in US financial markets.
Disadvantages for Forex
Instability in currency throws open markets and makes it impossible to accurately predict the outcome of calls on different pairs of currencies. Due to the closeness of the US election, markets became increasingly volatile making forex investment more dangerous. For example, while the dollar fell against the euro, yen and sterling after the December interest rate rise, it rose against the Australian, New Zealand and Canadian dollars. This unpredictability makes forex trading an ambiguous game with almost any outcome a possibility. There is still no clear view of how the dollar will fare in the long-term as the US faces a financial identity crisis akin to that in the UK where uncertainty looms regarding the impact of leaving the European Union. Trump has more power over the stock market than any individual in history: any one of his tweets could have an immediate impact on any major currency and the stock market overall which causes a degree of instability never seen before.
The long-term impact of Trump’s financial policies still remains to be seen but it seems that no matter what the outcome, Trump heralds overall success for American commerce and the US dollar overall. Such an outcome can only be positive for forex.