The anniversary of his election victory is approaching and there is still a sense of disbelief whenever you hear the phrase ‘President Donald Trump’. The conversation around Trump’s inability to win the election, was the topic of choice at dinner tables, but forks dropped when the results were tallied on election night. The 45th President of the United States has had an impact on the markets so great, that it has coined its own name – Trump Trade.
Trump’s influence was evident as soon as the results came in, with the USD taking a fall and the Dow Jones dropping by 800 points. In contrast, the moment the new president-elect stood for his speech, the dollar regained its stability and the stock market rose with a triple-digit rally.
Trump’s off the cuff remarks early on in his presidency, accusing China of currency manipulation and Germany of using a ‘grossly undervalued’ euro to exploit trading partners, were not well received by the markets. The accusations swiftly sliced 2.6% off the dollar index. Then it was time for oil prices to join the movement in April, with Brent and WTI Crude pricing at $56.08 and $52.94 respectively after Trump ordered an air strike on Syria.
Trump Trade was still in full effect in March and July, following the jettisoning of the Republicans’ Obamacare Repeal, twice. These events appeared to prove that Trump would not be able to easily implement his promised legislative reforms, and the markets responded with a stunning rejection of the USD in favour of more ‘reliable’ assets.
When it became clear that the Washington establishment was not going to grant Trump’s protectionist agenda free rein, Trump Trade seemed to lose its bite over the summer. The President’s ill-advised reference to North Korean leader Kim Jong-Un as ‘Rocket Man’ and sarcastic comments towards Vladimir Putin might have sent social media into a frenzy, but for once the markets hardly moved.
The third quarter brought with it the unveiling of the ‘biggest tax reform in decades,’ which rekindled faith in the USD, boosting the currency by 2.2%. The plan has attracted a great amount of criticism across the board, however, the promise of $6 trillion in tax cuts has rekindled investor interest in the dollar.
While Dollar bulls may benefit from the renewed sense of optimism over Trump’s tax reforms, some headwinds could come in the form of uncertainty over who the next chair of the Federal Reserve will be. Current speculation puts hawkish John Taylor as the next Fed head. It should be kept in mind that a hawkish Fed Chair is likely to push for faster interest rate hikes, potentially strengthening the dollar and curbing consumer spending.
As Trump approaches the anniversary of his election, a pervading lack of confidence in the President now colours much of the media rhetoric. Traders are inclined to give him more credit, and renewed optimism in his ability to push through tax reforms sparked a dollar rally on Friday, October 20.
The U.S. stock market is relatively calm, despite large gains in the last six months. When you have good GDP growth and low interest rates, it promotes a healthy bull market. However, so far October is one of the least volatile months in modern history and this never augers well for sustainability. Experts are saying that there is a correction on the cards.
If this happens, it will be interesting to see how the dollar fares and whether Trump gets the fallout. With almost one year down and three more to go, there is still plenty of time to see whether the Trump Trade is a trend that is here to stay, or whether it was simply the markets adjusting to perhaps one of the most controversial presidents the Americans have ever elected.
By FXTM’s Senior Staff Writer, Samantha Robb
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