We do not have confirmation yet, but all signs point not only to Donald Trump winning the presidential election, but also a complete victory for the Republicans. The markets were expecting such a scenario, but we are still witnessing a sharp strengthening of the dollar in response. The Polish zloty is under pressure.
Formally, only one state from the group of seven so-called “Swing states” (North Carolina) which decide the outcome of the presidential election in the USA, has been granted to Donald Trump. However, the former President leads in all other six(!) and his advantage is significant. In Georgia, which was subject to controversy four years ago, Trump’s win seems purely formal. In Pennsylvania, said to be the tipping point, Trump leads by nearly three percentage points after counting 94% of the votes. In the congressional elections, Republicans have so far taken three places from the Democrats in the House of Representatives and two in the Senate, but it is likely their victory will be even greater. It seems a presidency backed by the Republican Congress is on the horizon for Donald Trump.
Of course, in this configuration, Trump won’t be able to implement every vision. The Democrats will likely have a blocking minority in the Senate, and there are various factions even within the Republican Party. However, this arrangement gives the new White House Administration a strong mandate, which means significant changes. The market prices in two main issues: increased protectionism and lower taxes compared to a continuation of the Democrats’ rule.
This first aspect is crucial for the market. Firstly, such a policy is pro-inflationary. Since the Fed’s September meeting, interest rate cut expectations have fallen partly due to better data, but partly due to the proposed new tariffs in the campaign, which can now be implemented. This increases bond yields and strengthens the dollar. On the other hand, such announcements are nervously received by markets in Asia and Europe. For the Polish market, Trump’s election is also rather negative, especially in the short term, as a strong dollar means capital outflows from emerging markets, Europe’s problems may deepen (due to increased US protectionism), and there is increased uncertainty related to the situation in Ukraine.
Naturally, nominations and the announcement of the first actions will now be crucial. The truths of a campaign can often differ greatly from the reality of governance, although the difference may be smaller in Trump’s case. Tomorrow we await the Fed meeting, which will most likely decide it’s safest to cut rates by 25 bp (down to 4.5-4.75 percent) and await the development of the situation. As of Wednesday at 7:50, the euro cost 4.38 zlotys, the dollar 4.09 zloty, the franc 4.67 zloty, and the pound 5.25 zloty.
Author: Dr. Przemysław Kwiecień, Chief Economist at XTB
Source: https://ceo.com.pl/wygrana-trumpa-wzmacnia-dolara-zloty-pod-presja-fed-przed-kluczowa-decyzja-67241
