On Thursday, the Federal Reserve announced a 25 basis point rate cut as expected, lowering the benchmark interest rate to a new range. This move caused the dollar to suffer its largest drop since August, erasing the gains from Trump's election victory. The Federal Reserve emphasized in its statement that the rate cut was based on economic performance, rather than being directly influenced by the election results. The weakening of the dollar is mainly due to the continued expectation of the Fed's accommodative policy, with further rate cuts not being ruled out. The Bloomberg Dollar Spot Index fell 0.8%, while the yield on 10-year U.S. Treasury notes decreased, leading to a decline in the dollar index.
Although Trump's victory was thought to aid U.S. economic growth, Federal Reserve Chairman Powell pointed out that it is still too early to assess the policy impacts of the new administration, and future monetary policy adjustments will rely on economic data. He reiterated that the positions of the Fed Chairman and other members are legally protected and will not resign even if Trump raises objections.
Meanwhile, the global market's reaction to the U.S. political situation was more complex, with the British pound rising 1% against the dollar and both the Australian dollar and Yen also recording significant gains. The dollar's weakness reflects market expectations of future rate cuts and the influence of the Bank of England’s policy. Analysts noted that while Trump's election might stimulate domestic economic growth in the U.S., its impact on the global economy is still unclear. Sam Zief, the Global Foreign Exchange Strategy Head of J.P. Morgan Private Bank, stated that Trump's victory may bring positive impacts to the U.S., but the global economy will not be entirely harmed by it.
In addition, according to data from the U.S. Commodity Futures Trading Commission (CFTC), hedge funds and speculators significantly increased dollar positions driven by hedging needs before the election.
