After the election of Republican presidential candidate Trump, the US dollar index hit a four-month high, while the price of gold fell to a three-week low. After the election results came out, the market focused on the FOMC meeting decision. The Federal Reserve will announce its interest rate decision at 3:00 a.m. Taiwan time on the 8th. The market generally expects a 1 basis point cut in interest rates this time.
After Trump was elected as the President of the United States, investors rushed to buy US dollars, and the price of gold, which had hit record highs before the election, fell instead. The spot gold price fell 2.8% on Wednesday, falling to $2,643.77 at one point, hitting a new low since October 15 and the largest single-day drop in nearly six months. It stabilized on Thursday and is now at $2,663, up 0.16% on the day.
Spot gold price. Source: investing.com
Rhona O'Connell, head of Asia and EMEA market analysis at StoneX, analyzed that the market originally expected the election results to be controversial, but Trump's clear victory eliminated uncertainty and reduced risk factors. In addition, Trump's victory led to a strong rise in the US dollar. These two factors combined led to a drop in gold prices.
Investors expect that Trump's inauguration will boost the dollar as he is expected to propose new tariff policies that could trigger a surge in inflation and cause the Federal Reserve to suspend its easing cycle. After Trump's victory, the dollar index hit a four-month high, rising to 105.45 on Wednesday and now at 104.76, making dollar-denominated gold more expensive for non-dollar buyers.
US dollar index trend. Source: investing.com
After the election results are released, the market is paying attention to the FOMC meeting decision. The Federal Reserve will announce the interest rate decision at 3:00 a.m. on the 8th, Taiwan time. Following the 2 basis point rate cut in September, the market generally expects a 1 basis point rate cut this time. FedWatch data shows that the current market expectation is that the probability of a 1 basis point rate cut is 97.4%.
Ole Hansen, head of commodity strategy at Saxo Bank, said that rising inflation risks after Trump introduced new tariffs may slow the pace of U.S. interest rate cuts. Rate cuts may still occur this week, but the post-meeting speeches will be carefully studied by the market to see if there are any signs of a pause in rate cuts.
Asian currencies face risk of sell-off
Bloomberg reported that since Trump's victory, Asian currencies have been sold off, with the yen depreciating to the psychological level of 155 yen per dollar and the onshore renminbi approaching a 16-year low, making Asia's foreign exchange stability the focus again. Some strategists warned that if the United States imposes a new round of tariffs on its trading partners, it may trigger a competitive devaluation of currencies in the Asian region.
Asian currencies are bracing for more depreciation risks this week as the Federal Reserve will announce its interest rate decision on Thursday and China's Standing Committee will conclude its meeting on Friday. If the Fed hints that it will slow the pace of rate cuts or China's fiscal stimulus policy fails to satisfy investors, Asian currencies may come under pressure.
Shoki Omori, chief trading strategist at Mizuho Securities, said:
There has been no rest for Asian currency traders this week, with Trump's victory already boosting the dollar and investors now having to guard against potential intervention risks, particularly if there are surprise moves from the Federal Reserve or China's National People's Congress.
Traders will carefully analyze the remarks of Federal Reserve policymakers to judge the pace of future rate cuts. Any unexpected changes may shake the US dollar and in turn affect regional currencies. China's National People's Congress Standing Committee, as the permanent body of the highest state power organ, is expected to announce more stimulus measures after its meeting this week, but if it fails to meet market expectations, traders may weigh the impact of a new round of US tariffs on China, causing the RMB to weaken again.
