Global Markets React to Trump’s Election

The dollar is rising against the euro and pound, cryptocurrency values are surging, and oil and gold prices are falling. These are the markets’ responses to the incoming U.S. administration. Additionally, Jerome Powell remains at the helm of the Federal Reserve, signalling that a gradual reduction in the Fed’s key interest rates will continue, aiming to stimulate the American economy and curb dollar inflation. This has led to expectations of further depreciation in the euro against the dollar. The good news is that oil prices are also anticipated to drop.

Global attention is focused on the dollar's performance against other reserve currencies, and the dollar is indeed on the rise. The euro fell against the dollar to 1.06 on 14 November, down from 1.1196 on 30 September, the annual peak of the euro’s value. The British pound fell against the dollar to 1.275 from 1.342 on 26 September, the currency’s annual high.

Gold? Often viewed as a gauge of economic uncertainty, the price of gold soared to over $2,700 per troy ounce in the run-up to the U.S. election, reaching one historical high after another. However, on 14 November, the price was around $2,600 per ounce, still significant but reflecting a decrease in global uncertainty.

A Major Player

The global economy is strongly influenced by the movements of the U.S. Federal Reserve, which made its second rate cut of the autumn on 7 November, this time by 0.25 percentage points. This was the second consecutive cut, following a 0.5 percentage point reduction in September. Prior to these cuts, there had been no rate reductions for four years. Current Fed Chair Jerome Powell has sent clear signals to the markets, indicating his plan to continue rate reductions, provided inflation moves towards the target of 2% annually.

When the Fed made its rate-cut decision a week ago, October’s Consumer Price Index (CPI) data was not yet finalized. Preliminary September figures showed annual inflation at 2,4%. However, the Fed likely observed an upward trend in October's inflation early in November. Nonetheless, the Fed opted for another rate cut. Yesterday, it was revealed that inflation in October rose by 0.2% over the previous month, resulting in a 12-month inflation rate of 2.6%. This is unwelcome news but not sufficient to halt the Fed's path towards rate cuts. Jerome Powell’s next team meeting is scheduled for December.

Given the Fed’s influence, it is worth questioning whether the new U.S. administration will change its leadership. This seems unlikely. As previously noted, Powell’s term extends until May 2026, and there is no indication that Trump intends to replace him in early 2025. Powell’s Fed has successfully controlled inflation, a prominent issue in the last presidential campaign. Moreover, it was Trump who initially appointed Powell to his current role during his first term in office.

While Powell could be pressured to step down, he was candid about his intentions at the 7 November press conference, confirming he aims to serve his full term and reminding the public that the president lacks legal authority to remove him from office. If Powell’s policies continue and the U.S. economy experiences significant growth, we may see the dollar strengthen against other reserve currencies.

Oil Wave

The new Trump administration is likely to exert downward pressure on oil prices, driven by several factors. First and foremost, Republicans are committed to combating inflation, a stance that helped them secure victories in the presidential and congressional elections. Lowering oil prices is a major driver for reducing inflation — an outcome eagerly anticipated in the U.S. This shift is already underway, with Brent crude prices hovering around $72 per barrel, down from over $81 in early October.

Furthermore, it is highly probable that the Trump administration will implement protectionist measures to support American industry, potentially introducing additional tariffs on Chinese, and possibly European, goods. Such actions could negatively impact China’s economy, which would likely dampen its demand for oil. Since China is one of the world’s largest oil importers, a reduction in its oil imports could drive down global oil prices. We can expect to see the impact of this decrease at European petrol stations.

Another inflation driver is Russia’s war against Ukraine. The full-scale invasion has significantly affected the global food market, given Ukraine’s status as a key exporter of sunflower oil, wheat, soybeans, and corn. Should Trump fulfil his promise to curb Russian aggression, this would likely stabilise food prices. In October, the United Nations Food and Agriculture Organization (FAO) reported that its food price index reached an 18-month high, driven largely by vegetable oils. Sunflower oil prices were a key contributor to this surge. And we remember, Ukraine vies with Argentina as the world’s top exporter of sun flower oil.