Dollar Slows as Trump’s Win and China’s Policy Paths Keep Markets Guessing

Image Credit: Reuters

 

The dollar steadied on Friday, wrapping up a turbulent week with a modest gain as markets weighed the economic impact of Donald Trump’s expected return to the White House and its implications for U.S. interest rates. 

Investors are watching closely as Beijing wraps up its five-day National People’s Congress Standing Committee meeting, hoping for further clarity on potential stimulus measures to support the yuan and boost Antipodean currencies. 

Earlier in the week, traders took profits on bets tied to a Trump presidency, which helped lift the British pound closer to the $1.30 mark and gave the yen some relief near 153 per dollar. The euro slipped 0.07% to $1.0795 and is on track for a 0.35% weekly decline, impacted by a stronger dollar and a political crisis in Germany after Chancellor Olaf Scholz’s coalition collapsed on Wednesday. 

The Federal Reserve cut interest rates by 25 basis points on Thursday as anticipated, signaling a cautious approach to further cuts. Kerry Craig, a global market strategist at J.P. Morgan Asset Management, noted that while another rate cut is likely in December barring significant inflation or labor market changes, potential trade and tax policies may complicate the 2025 inflation outlook.

Following Trump’s election, traders reduced expectations for rate cuts next year due to potential inflation from proposed tariffs. Wells Fargo’s chief economist Jay Bryson suggested the Fed funds rate may settle closer to 4% rather than 3% if Trump implements significant tariffs or other inflationary policies.

The pound recovered to $1.2983 after falling earlier in the week, supported by an upbeat Bank of England outlook despite its rate cut. The yen slightly weakened to 153.15 per dollar. The dollar index rose 0.03% to 104.44, poised to gain 0.1% for the week, having surged 1.53% on Wednesday with strong “Trump trades.”

The spotlight is on China’s NPC meeting outcome, as further support measures could help Chinese assets weather the potential tariff threats from Trump. The offshore yuan was marginally lower at 7.1532 per dollar, while the Australian dollar, often viewed as a proxy for China’s currency, dipped 0.13% to $0.6673. The New Zealand dollar held steady at $0.6022.

David Chao, Invesco’s Asia Pacific ex-Japan strategist, expects substantial fiscal and monetary stimulus from Beijing to counter trade challenges. Thursday’s data showed a surge in China’s exports in October, with factories accelerating shipments to key markets amid the risk of heightened tariffs from the U.S. and EU, signaling a potential two-front trade conflict.

 

 

 

 

 

 

 

 

 

Paraphrasing text from "Reuters all rights reserved by the original author.