How Trump is making the dollar great again

Euro-dollar parity could be on the way...

How Trump is making the dollar great again

Picture by Charles Sykes AP/Press Association Images

After the initial shock to the system suffered by currencies and stocks around the globe directly following Donald Trump's surprise victory in the US presidential election last week, the financial world has recovered remarkably well.

This is particularly the case for the US dollar, which is actually enjoying a Trumpian boost. The dollar climbed to a nine-month high against many major currencies on Monday.

In line with rising US bond yields, the increase owed to traders betting that the Trump administration's economic policies would mean inflation.

The 10-year US Treasury note yield climbed to a 10-month high of 2.2% in Asia. Meanwhile, the Chinese yuan fell to its weakest against the dollar since before the launch of its offshore market in 2010. Conversely, the Mexican peso recovered from its record low of 21.39 pesos to the dollar last Friday, hitting 20.76 due to Trump's apparently softening stance on many of his campaign issues, including the border wall.

Currently, one euro will buy you $1.08.

Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, told Reuters:

"It is probably a good idea to keep riding the dollar higher while the Trump has not yet revealed any specific policy steps. The euro could be more easily exposed to negative pressure amid concerns that the win by Trump, with his anti-globalism agenda, could affect referendums and elections in Italy, Holland and France next year." 

A significant number of market commentators now expect the US currency to hit parity with the euro in the first half of next year, as the President-elect’s pledges to increase spending on infrastructure and cut taxes are likely to boost US economic growth and put pressure on the US Federal Reserve to raise interest rates more quickly than anticipated. Higher interest rates would then lead to a stronger dollar.

This would spell good news in terms of attracting US tourists to Ireland, as well as for US firms translating profits back into euros, but bad news for energy prices.