Navigating global markets as Trump returns to power

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Donald Trump’s return to the presidency is here. Simultaneously, the U.S. dollar’s strength remains unchallenged in global currency markets. This dominance largely reflects the Federal Reserve’s current stance, which is markedly different from the easing trends seen in most other central banks worldwide. It’s a situation that has market participants watching closely. Everyone is waiting to see how Trump’s inauguration, as well as potential changes in trade policy, will reshape the financial landscape.

Currency outlook

The dollar continues its strong performance, showing no signs of slowing. Robust employment figures and the Fed’s consistently hawkish policy are both contributors to the currency’s current standing. Meanwhile, there’s movement with the Japanese yen, which seems to be experiencing something of a revival. Inflation has been a persistent issue there, sitting stubbornly above the Bank of Japan’s 2% target. Given widespread expectations of a policy shift during their January 23-24 meeting, the yen’s outlook is increasingly bullish.

The Swiss franc presents a trickier scenario. On one hand, its safe-haven reputation gives it an underlying level of support, but on the other, the Swiss National Bank’s more dovish positioning and possible market interventions, cast a shadow over the currency’s near-term future. A recent rate cut by 50 basis points down to 0.5% has done little to remove uncertainty.

Several major currencies are also experiencing struggles. For instance, the euro is feeling pressure. It has to deal with dovish stances by the ECB, along with political instability in France and Germany. To further add to their woes, a growth forecast of only 0.7% is proving to be particularly deflating. The situation for the pound sterling doesn’t look great either, where the currency has been facing slow economic growth and continued inflation, along with the cautiously hesitant approaches of the Bank of England. Finally, there is also the case of the Australian dollar, which is coming up against mounting pressure; The Reserve Bank, along with concerning domestic figures and the instability surrounding China’s economy, are also playing a key role in the pressure on the currency.

Things are dramatic in the North American currencies too. The Canadian dollar has sunk to a five-year low compared to the USD, triggered by Prime Minister Trudeau’s resignation, threats from U.S. tariffs, and dovish policies by the Bank of Canada. Even more significantly, the New Zealand dollar is now battling with a technical recession, as well as some aggressive easing from the RBNZ, creating a strong, downwards pressure on the currency.

Critical dates and market forces

The coming weeks promise to bring a fair amount of volatility. Trump’s inauguration on January 20 marks the beginning of what’s set to be a very interesting period. There are several important rate decisions upcoming from the BOJ, Fed, and ECB, along with crucial U.S. economic data. The interaction between all of this; political changes, economic data, and central bank policy will likely dictate the dynamics of the markets. Be observant to: The very different stance between the Federal Reserve’s hawkish tendencies, along with the worldwide trend toward easing, as well as, any changes stemming from the shifts happening in the U.S. and Canada. On top of it all, persistent issues surrounding inflation across many of these economies need careful consideration.

Trading strategy considerations

Right now, conditions in the market are favoring maintaining long USD positions against the majority of the major currencies. The Japanese yen, given the possible positive shift stemming from Bank of Japan policy changes, is one that could prove to be worth watching carefully. On the other hand, however, you’ll want to exercise significant caution with both the New Zealand and Canadian dollar. It’s safe to assume, the period immediately around Trump’s inauguration and those important central bank meetings will be associated with heightened volatility; requiring careful planning regarding both position management, and overall risk.



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