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The dollar index (USDX) shot up 1.7% on Wednesday, marking its largest single-day gain in four years, as Trump’s re-election stirred anticipation of pro-dollar economic policies.
Traders responded swiftly, pushing up the dollar and pricing in Trump’s expected tax cuts and tariffs that could drive inflation. This surge in USDX signals that the dollar is back in focus, reflecting strong expectations for growth and renewed “Trump trade” policies, which previously rallied markets.
Picture: The USDX chart shows recent bullish momentum with a rise to 105.325, but signs of consolidation near 105 suggest potential resistance ahead, as seen on the VT Markets app.
The dollar’s momentum weighed on other currencies, with the euro dropping 1.8% to $1.0730, a sharp fall not seen since Brexit.
See also: US Stock Futures, Dollar Rise as Early Results Favour Trump
Many traders worry that higher tariffs from Trump could slow global trade, especially impacting Europe. USD/JPY rose 2% to 154.59, putting the yen near intervention levels, while the Mexican peso tumbled over 3%, hitting a two-year low.
The dollar’s strength also rippled through the bond market. U.S. Treasury yields jumped, with the 10-year yield up 14 basis points to 4.4343%, marking its biggest gain in nearly seven months.
Traders expect that Trump’s policies will drive inflation, creating less room for the Fed to cut rates aggressively, further supporting USDX.
The 30-year yield saw an even larger rise, highlighting how strongly markets are reacting to potential fiscal changes.
Trump’s re-election is creating waves beyond the U.S., with emerging markets feeling the pressure of a stronger dollar.
In China, where trade tensions could re-escalate, the offshore yuan fell to 7.1969 per dollar, despite efforts by Chinese banks to support the currency. The euro and British pound also weakened, with USDX’s strength echoing across global markets.
As USDX gains momentum, the dollar looks set for further strength if inflationary pressures hold and the Fed remains cautious. However, the dollar’s rise could add volatility, particularly if Trump’s trade policies intensify global economic tensions.
The dollar index’s path forward now hinges on how these anticipated changes in fiscal policy play out on the global stage.
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