Euro suffers worst drop since COVID as Trump set to win US election

The Republican Party has regained control of the Senate and leads in the House of Representatives, solidifying a “red sweep” scenario that grants Trump significant leeway to pursue his policy agenda.

With this victory, likely marking his second term following his 2016-2020 presidency, Trump is expected to maintain low taxes on corporations and wealthy individuals and to increase tariffs on foreign imports.

“We are going to fix our borders,” Trump said in his first speech after the results, adding that “America has given a powerful, unprecedented mandate”.   

Economists largely agree that Trump’s trade tariffs, coupled with tax cuts and a hardline stance on immigration, are likely to push consumer prices higher. This could prompt the Federal Reserve to adopt a more restrictive monetary policy, further supporting the dollar. 

Dollar strengthens across the board, euro suffers worst day since COVID-19 outbreak

The euro fell 1.75% to $1.0740 as of 8 am CET, setting it on track for its worst day since March 2020.

A dollar index tracking the greenback’s strength against a basket of major currencies rose 1.5%. 

Other currencies, including the Japanese yen, Australian dollar, and sterling, also weakened, with the yen dropping 1.5%, the Aussie 1.4%, and the pound 1.3%.

Central-Eastern European currencies saw the Hungarian forint drop 2.4%, the Czech koruna 2%, and the Polish zloty 1.9. 

Meanwhile, the Chinese yuan and Mexican peso fell 1.2% and over 3%, respectively, weighed down by expectations of stricter trade and border policies. 

“The reaction in FX markets has been a strong dollar across the board. We expect a prolonged period of dollar outperformance,” wrote Francesco Pesole, a forex analyst at ING Group.

However, Otavio Costa, a macro strategist at Crescat Capital, warned that Trump’s potential pressure on the Federal Reserve to cut interest rates could counterbalance this dollar rally. 

“With a Fed that’s compelled to cut rates despite clear signs of bottoming inflation. This is one of the most challenging environments for the USD that I have seen in my career,” Costa wrote on social media X.

US Treasury yields spiked overnight, with the 10-year benchmark yield climbing 15 basis points to 4.42%, widening the spread between the 10-year Treasury and German Bund to 200 basis points, the largest gap in six months.

US Treasury yields spiked overnight with the 10-year benchmark up by 15 basis points to 4.42%. 

The yield spread between 10-year Treasury and Bund widened to 200 basis points, the highest in six months. 

The strengthening dollar and rising U.S. yields have weighed on commodities. 

Futures on West Texas Intermediate (WTI) crude dipped 1.5% to just below $71 per barrel, while Brent crude also dropped 1.5% to $74.40. 

Gold edged down 0.7%, and both silver and copper slid by 2.4%. 

US and global stocks rise, while China slides

Trump’s victory fuelled gains in US equity futures, with S&P 500 futures climbing 2%, indicating a potential record-breaking open. 

Markets appear optimistic, expecting relief from corporate tax hikes proposed by Kamala Harris and downplaying potential global growth risks from higher U.S. tariffs.

In Asia, Japan’s Nikkei 225 surged over 3.4%, while Hong Kong’s Hang Seng and Shanghai Composite Index fell 2.5% and 1.1%, respectively, reflecting concerns over potential trade restrictions on China.

In Europe, Russian stocks were standout performers, with the MOEX index climbing 2.5% amid hopes that Trump’s administration might ease economic sanctions on Russia.

European markets opened mostly higher. The broader Euro STOXX 50 index rose by 0.5%, with the Dutch AEX index up 0.8%, France’s CAC 40 gaining 0.6%, Germany’s DAX up 0.5%, and Italy’s FTSE MIB increasing 0.3%. Spain’s IBEX 35 was the outlier, slipping 0.7%.

European financials led the gains, with Unicredit, Deutsche Bank, Societe Generale, AXA, and BNP Paribas all advancing at the open.