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Forecast of Trump’s Impact on the Forex Markets

Feb 06 2017

Donald Trump’s victory in the 2016 U.S presidential elections came as a great shock to many people. The world was simply not prepared for it. Well, the reality is that Donald Trump is the 45th president of the U.S. If he is true to his words, not only the residents of the U.S but globally we should expect change in many areas including the global economy and in turn the foreign exchange market, as predicted by CMC Markets. The trouble is, however, is that no one is really sure of exactly what to expect.

One of the busiest scenes in the speculation of the impact of Trump’s presidency is the global economic market. While one side argues that Trump’s reign will lead to economic growth, the other is quick to express its misgivings and is lamenting a foreseen period of economic hardships. Still another side is trying to recollect all the happenings in the economic arena since Trump was declared the winner with hope of finding out an indication of the direction the global economy is most likely to be headed under his leadership.

Trade Restrictions

Trump’s promise of more jobs and less imports may sound good to Americans. However, many people forget that trade curbs will most likely lead to weakening of multinationals and economies back home. In addition, other countries may take it as a good—or bad—example and close their doors too. In the end, free trade, open markets and globalisation will be quickly led to the death bed. Already, there are fears that a stronger dollar, lower imports and higher costs of paying for debts held in dollars would limit economic activities in new markets and push down the global GDP.

Unfulfilled Expectations

The American stock market had witnessed a steady rise since Trump was elected. There was optimism that Trump would cultivate good ground for business and most American investors are happy. Nevertheless, he has not yet shown any signs, positive or negative, on exactly what he would do about infrastructure spending and tax cuts; some of the greatest factors influencing the increase in the stocks.

As a result of the caution taken by investors and the unpredictability of the president’s words and actions, the dollar began its fall. Consequently, the sterling together with the Turkish lira found a chance to gain ground. Bonds and gold, which are the favourites for investment in times of unpredictable markets rose in popularity.

Strained Relations with China

Many financial analysts are waiting to see what will happen to the relations between the U.S and Russia. However, China cannot be overlooked. Former U.S president Barack Obama was always working hard towards the improvement of the relations between the two countries but Trump seems to be sure that strained relations will bear something better for America, including creation of job opportunities.

China has made efforts to devalue the Yuan with the aim of promoting its exports. The country benchmarks the value of the Yuan through the use of a basket of global currencies. This year, it has a new, bigger basket of the world’s currencies and it is widely believed that it will lead to the lessening of the dollar’s impact on valuation while increasing its popularity with investors and gaining more stability in the face of shifts in the market.


Bottom Line

There are enough reasons to hope for the best from Trump’s presidency. At the end of 2016, investors had high expectations which in turn led to the rise of the US dollar. Trump’s pro-business approach marked by deregulation and economic stimulus also greatly helped matters.

No one, however, knows for sure the expected impact of Trump’s presidency on Forex trade and the global economy in general. Even some of his greatest political and financial supporters are waiting for the moment words will be turned to action. While the effecting of his policies is sure to take months, there is a likelihood of disappointment as a result of high expectations.


TAGS: trump  forex markets 
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