The dollar retreated slightly on Thursday after reaching a four-month high on the heels of Donald Trump’s presidential election victory. Market anticipation is now focused on the Federal Reserve’s rate decision later today, where a 25-basis-point cut is expected. Investors are eager to gauge any hints from the Fed about a potential rate pause in December. Last week’s weaker-than-expected October jobs report cast doubts on labor market strength, clouded by recent hurricanes and labor strikes. This shift has reduced market certainty regarding future rate cuts, though a 67% chance remains for a December cut, down from 77% earlier in the week, per the CME Group’s Fed Watch Tool.
Trump’s Win and Fed Rate Impact
Trump’s win has fueled speculation that the Fed might adopt a more gradual rate-cutting pace, given his policies on tariffs and immigration, which are anticipated to drive inflation higher. This outlook has propelled the dollar index (DXY) to 104.94, down 0.16% but still near its recent July highs, following its biggest one-day gain since March 2020. U.S. Treasuries have seen substantial selling pressure, pushing yields to multi-month highs, while record-high U.S. equities and a weakening yen reflect what analysts call a “market endorsement” of Trump’s economic policies.
Global central banks are also responding to these shifts. Japan’s yen fell to a three-month low, prompting Japan’s top currency official to issue strong warnings against speculative trading, signaling potential intervention if the yen declines further. Meanwhile, the Bank of England is poised to cut interest rates amid inflationary pressures, and the Riksbank in Sweden may reduce rates by 50 basis points, while Norway’s Norges Bank remains steady. In Asia, China’s yuan strengthened on robust export data, and the Australian dollar saw a 0.72% rise due to a weaker dollar and favorable trade figures.
With Trump’s win and the approaching Fed rate decision, market responses reveal a cautious approach. The dollar retreat underscores an uncertain global currency landscape, where the Fed’s guidance could either strengthen or temper the greenback’s momentum.
