Investing.com – The U.S. dollar soared on Wednesday, poised for its biggest one-day rise since March 2020, as Donald Trump inches closer to presidential victory, while a Republican sweep of Congress also appears likely.
At 04:00 ET (09:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, rose 1.4% to 104.737, after earlier climbing as high as 105.237, a peak of four months.
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The dollar soars as Trump moves closer to the White House
Republican candidate Donald Trump declared himself the winner of the US presidential election earlier Wednesday, although the race has not yet been officially called, saying the victory gave him a “powerful mandate” to implement his various economic policies.
The Republican Party also gained a majority in the Senate and appeared poised to win the House of Representatives as well.
A Republican sweep in Congress gives Mr. Trump a much easier path to enact major policy changes, with his tariff and immigration policies seen as inflationary by analysts, boosting the dollar.
“Trump trading is in full swing as US ballot counting continues,” ING (AS:) analysts said in a note. “If the growing consensus for a Republican sweep ultimately materializes, we expect a prolonged period of dollar outperformance.”
The Federal Reserve also meets this week and will conclude its work on Thursday. Markets have positioned themselves for another rate cut, this time of 25 basis points instead of the massive 50 basis point cut seen in September.
The euro is collapsing
In Europe, the pair fell 1.5% to 1.0762, falling to its lowest level since early July, as a second term for Donald Trump as US president becomes more likely.
“The euro has been the weakest of the G10 currencies overnight so far and you can see why,” ING added. “Donald Trump is expected to expand his trade war from China in his first term to a larger scale in his second term. This comes at a time when Eurozone growth is stagnating and Germany , in particular, is considering its future economic model. Plans to export to escape stagnation are no longer an option for the eurozone.
The euro’s weakness comes as Germany’s services sector recorded a slight increase in business activity in October, reaching its highest level in three months earlier on Wednesday.
The PMI rose to 51.6 from 50.6 in September, marking the first acceleration in growth in five months.
The pair fell 1% to 1.2917, with the Bank of England likely to authorize a further 25 basis point rate cut on Thursday, its second cut after its first reduction in borrowing costs in four years in August .
Before last week’s budget, a reduction was seen as a virtual certainty, but the larger-than-expected scale of government spending and borrowing has created some uncertainty.
Asian currencies facing Trump’s difficulties
The rose 1.6% to 153.95, a more than three-month high, as Trump’s victory grew closer.
The weak yen also kept traders alert to possible government intervention in the currency market, following recent verbal threats from ministers.
The rose 0.8% to 7.1579, with the yuan falling as Trump pledged to impose high tariffs on China if re-elected, presenting a tougher outlook for the yuan.
This week, attention is also focused on a meeting of China’s National People’s Congress, where the government is expected to approve increased budget spending for coming years.
The fell 0.9% to 0.6579 as Australia’s economy was seen as suffering from potential Trump tariffs on China, given Australia’s trade ties with the Asian giant.
