What a Trump White House means for the dollar, for China… and beyond

The US dollar started rising, the Mexican peso began falling. That could only mean one thing – that Donald Trump was set to become the next president of the United States.

So it proved, with the markets factoring in a resounding Trump victory well before he appeared at his celebratory rally in Florida. Suddenly, across the world, “Trump trades” were back on again.

There had been a period when they were off the agenda, put on hold by speculators as the prospect of a Kamala Harris win hardened. Not last night. As soon as the results rolled in, strategies for currencies, equities and bonds, based on a Trump return to the White House, were hastily revisited.

They were also being revised, since his triumph was appearing more emphatic than the polls during the campaign had ever suggested. He could end up with all three levers of American might under his control: the presidency, the Senate and the House. Not to mention the Supreme Court. Come January and his formal crowning, the 47th head of the most powerful country on Earth may be able to do pretty much as he pleases.

Immediately, the dollar index, measuring the US currency against some of its main rivals, was up 1.5 per cent, its largest gain since September 2022. The pound was 1.1 per cent lower against the dollar at $1.29, while the euro fell 1.7 per cent to $1.074.

US Treasury notes were also trading upwards, reaching their highest level since early July.

Trump has pledged that his will be a protectionist administration, controlling illegal immigration and raising trade tariffs. That’s why the Mexican currency is taking a beating – not because of restricting migration and Trump’s promise to complete the border wall, but due to the tide of cheap goods into the US.

China, too, is in his sights. Not for nothing were Shanghai’s Composite and Hong Kong’s Hang Seng indexes flat or down on the news. This, while other markets around the world were buoyant.

In the UK, the FTSE 100 was up, with analysts believing that the UK’s biggest stocks were in a strong place to benefit. Travel, defence and aviation shares were early climbers.

Trump, they reckon, will overall be good for domestic business, cutting taxes, keeping rates down, and removing stifling regulation, and the effects will spill over internationally. Wall Street was showing strong gains, with futures on the S&P 500 climbing 2 per cent and the Nasdaq 100 rising 1.7 per cent.

There was an element of relief at work, as well, that the outcome was far more certain than envisaged. Investors hate uncertainty, and the manner of Trump’s success put paid to that concern.

There is an irony in much of the positivity. The fact is, although he may not admit it or be prepared to give credit where it’s due, that Trump inherits from Joe Biden a domestic economy that is in pretty sound shape.

Trump scored heavily among voters fed up with inflation, but that is likely to continue for some time yet, as he brings interest rates and taxes lower and hikes those barriers to entry. It’s those Trump add-ons that are causing the excitement – that the formidable US economic engine will accelerate and motor ahead as a result.

Overseas investors took some unexpected comfort from his Florida speech, though, noting that he did not dwell on customs charges. Perhaps they were thinking and hoping that he might not be as aggressive as they’d feared, and that Trump 2.0 will be more relaxed, which can only be good for foreign business.

No major company is thought to gain more from his support than Tesla, the home of his staunch backer Elon Musk. Its Frankfurt-listed shares instantly rallied by double digits as the likelihood of the friend of its biggest shareholder returning to the White House also soared.

But the Trump effect was not just confined to the biggest players. The Russell 2000, which applies to US smaller stocks, jumped 5.1 per cent.

Nor was it restricted to the more traditional, smokestack sectors. During his campaign, Trump said he would make the US “the Bitcoin superpower of the world”. Crypto duly responded, with Bitcoin leaping more than 7 per cent to reach a record high of $75,389.

It’s early days, and there are weeks to go before he settles into office – but today, the markets, save those in Mexico and China, are cheered.