The Federal Reserve "ignores" Trump's victory and lowers interest rates as scheduled, with the dollar giving back its post-election gains, marking the largest decline since August
The US dollar recorded its largest decline since August after Trump won the US presidential election, as the Federal Reserve cut interest rates as expected and did not change market expectations for further rate cuts. The dollar index fell by 0.8%, mainly influenced by a significant drop in US Treasury yields. Federal Reserve Chairman Powell stated that the election results had no impact on the Fed's decisions. The strengthening of the British pound and Australian dollar also put pressure on the US dollar. There remains uncertainty in the market regarding expectations for Trump's policies
According to Zhitong Finance APP, on Thursday, the dollar recorded its largest drop since August, erasing most of the significant gains from the previous day when Trump won the U.S. presidential election.
Due to a sharp decline in U.S. Treasury yields, the Bloomberg Dollar Spot Index fell by 0.8%, reversing the substantial rise from the previous trading day. With the Federal Reserve cutting interest rates as expected, but not changing market expectations for further cuts, the dollar index continued its downward trend.
Wells Fargo strategist Aroop Chatterjee stated, "Currently, the actions of the Federal Reserve have shifted. It all depends on what the new government and the Republican control of Congress will bring."
At present, control of the U.S. House of Representatives remains uncertain, with about 30 congressional race ballots still uncounted on Thursday. If Republicans take over, they will be able to pave the way for Trump's tax cuts, immigration, and trade policies, and confirm his nominations.
Trump's election is seen as favorable for the dollar, as his trade policies may slow the Federal Reserve's pace of monetary easing. The dollar index rose to its highest level in a year on Wednesday.
However, after the Federal Reserve announced its interest rate decision on Thursday, Chairman Powell stated that the U.S. presidential election had "no impact" on the Fed's recent decisions, noting that it is still too early to know any potential policies and their implications. Powell also mentioned that any dismissal or demotion of Federal Reserve board leaders, including himself, is "not legally permissible," and he would not resign if Trump requested it.
The dollar's weakness was also influenced by the strengthening of the pound, which rose by 1% against the dollar, as traders reduced bets on further easing after the Bank of England cut rates as expected.
The Australian dollar recorded its largest single-day gain in nearly a year, while the yen saw its biggest increase since the end of September.
Sam Zief, head of global foreign exchange strategy at JP Morgan Private Bank, stated that Trump's victory is a positive shock for U.S. economic growth, but it may not be "entirely negative" for the world.
Data released last week by the U.S. Commodity Futures Trading Commission (CFTC) showed that as demand for safe-haven assets rose ahead of the election, hedge funds and other speculative traders expected the dollar to rise further. The CFTC will release a report for the week ending November 5 on Friday