The dollar saw its biggest rise since the 2016 Brexit referendum and Wall Street was poised for big gains as Donald Trump’s historic victory in the US election sent investors around the world rushing to integrate a new regime of customs duties and tax reductions.
THE American currency rose against the euro, yen and pound on Wednesday as traders returned to so-called “Trump trades” in hopes that the president-elect’s plans for tariffs and taxes would boost stocks, rise inflation and would reduce the pace of interest rates. cuts.
Wall Street was also on track for firm gains at Wednesday’s open, with S&P 500 index futures up 2.3 percent and the Nasdaq 100 up 1.7 percent. .
“The Trump trade is back,” said Francesco Pesole, currency strategist at ING. “It appears that markets are pricing in a clear victory or close to it,” referring to a so-called red wave scenario in which Republicans also emerge with control of both houses of Congress. Such an outcome would further strengthen the dollar’s strength, he said.
In a sign of bullish sentiment, the Vix, Wall Street’s measure of expected stock price volatility, fell to its lowest level since September.
Stocks are rebounding “because investors hate uncertainty more than any candidate,” said Luca Paolini, chief strategist at Pictet Asset Management.
U.S. and European bond markets moved in opposite directions as investors bet that tariffs would hit growth in Europe along with AssetThe economic package stimulates the American economy.
The yield on the 10-year Treasury note rose 0.18 percentage points to 4.47 percent, its highest level since July, while the German Bund yield fell 0.03 percentage points to 2 .41 percent. Yields move inversely to prices.
“European growth, which has probably been hurt to begin with, could worsen if a trade war materializes and the European Central Bank may then have to distance itself from the Federal Reserve,” said Robert Dishner, head of the wallet. manager at asset manager Neuberger Berman.
The yield on US 30-year “long bonds” reached 4.68 percent, its biggest daily change in more than a year.
The dollar index, which measures the currency against a basket of rivals, rose 1.9 percent, recording its biggest one-day rise since June 2016. Sterling was down 1.5 percent cent against the dollar at 1.285 dollars, while the euro fell by 2.2. percent to $1.069.
At the same time, the prospect of tariffs and loosening U.S. regulations has hit renewable energy stocks and European automakers, while strengthening U.S. banks.
“The market is reacting to a potential ‘red wave,’ but the challenges will come later,” said Andrew Pease, global head of investment strategy at Russell Investments.
“The risk is that investors are too optimistic about the prospects of new tariffs and a resumption of the trade war, given that the economic impact of the trade war under Trump (during his first term) was relatively limited.”
Bitcoin rose 8 percent, reach a record level of $75,389, making the world’s largest cryptocurrency one of the biggest moves in the markets, before pulling back slightly. Trump has positioned himself as the pro-cryptocurrency candidate, pledging to make the United States “the world’s bitcoin superpower.” Cryptocurrency exchange Coinbase jumped 12.7 percent.
Futures tied to the Russell 2000, a gauge of small-cap U.S. stocks, rose 5.9 percent, with some investors predicting a broader rally.
A red sweep could create a “high-octane” U.S. economy that sends global stocks higher over the next year “as profits rise and margins remain high,” said Samy Chaar, an economist in chief at Lombard Odier. He singled out financial and defense stocks as likely winners.
In foreign exchange markets, the euro was the weakest currency in the G10 that day due to the prospect of tariffs hitting export-dependent economies.
The Mexican peso, seen as particularly vulnerable to Trump’s plans to impose tariffs on imports to the United States, fell about 2.6 percent to 20.63 pesos per dollar.
The yen, meanwhile, weakened 1.7 percent to ¥154.3 per US dollar. The sharp fall in the yen led to a rally in Japan’s export-oriented stock market, with the Topix rising 1.9 percent.
Chinese markets fell. Hong Kong’s Hang Seng Index fell 2.2 percent, dragged down by mainland Chinese companies. The offshore renminbi, for which the People’s Bank of China does not set a daily fixing rate, weakened 1.1 percent against the dollar, while its domestic equivalent fell 0.8 percent.
Currencies considered “China proxies” due to their exposure to its economy also weakened, with the Australian dollar losing 1.2 percent to $0.656.
“Trump’s tariffs. . . if it goes ahead, it could potentially cause enormous pain,” said Ray Attrill, global co-head of foreign exchange strategy at National Australia Bank in Sydney.
Companies that expected to profit from a Trump victory surged. Tesla jumped 14.9% in premarket trading, betting that prominent Trump supporter Elon Musk would benefit from the former president’s re-election. The Tesla chief backed the Republican to avoid “strangulation by excessive regulation.”
