What Does A Trump Presidency Mean For The USD?

Nov 10, 4:37 pm
Dollar_USD_USDX

For many traders wondering what a Trump Presidency could mean for the US, it can be difficult to escape the mainstream media storm and ascertain the facts so here is a quick rundown of how A Trump Presidency could shape the US outlook.

  • US Government debt likely to increases due to higher budget deficit

Trump has declared his intention to “at least double” Clinton’s infrastructure spending implying around 0.6% of GDP per year alongside tax cuts of $3bln which in sum equates to an easing of at least 2.2% of GDP per year.

It is hard to gauge the actual effects of Trump’s economic plans but certainly a far more expansionary fiscal approach is on the table. However, what is doubtful at this stage is that Trump will be able to get all of his proposals through despite a Republican-dominated House of Congress.

An increase in the US’s level of debt could see it losing its AA status as debt levels could rise as high as 95% of GDP over 10 years from the current 75% level today

  • The US to become more protectionist

Trump has been a strong vocal opponent of free trade stating that he believes that unfair trade practices by countries such as China are harmful to US companies.

Trump has declared that he wants to bring Manufacturing jobs back to the US via a seven-point policy plan:

1 – Withdrawal of US from Trans Pacific Partnership

2 – Appointment of tough US negotiators

3 – Identify all the trade agreement violations and seek to end them

4 – Renegotiate the North American Free Trade Agreement to achieve better terms or else withdraw

5 – Label China as a currency manipulator

6 – Bring trade cases against China in both the US and WTO

7 – If China does not cease malpractices, Trump will use clauses in various trade acts to remedy the disputes

Adoption of this stance would strongly raise the risk of other countries retaliating thus igniting a trade war. Despite the US being a larger and less open economy than Europe for example, a protectionist stance can still be expected to lower US growth potential in the long run

  • Risk that Yellen might be replaced

Continuity of Fed policy is also under threat from a Trump Presidency. The US President criticized the Fed chair throughout his election campaign saying that the Fed has created a “false stock market” and that Yellen is “very political,” attributing low rates to her support of Obama.

Trump is likely to replace Yellen with a more Hawkish Fed chair in 2018 in line with his anti low-rates policy support. It is not clear that the Fed will raise rates in December due to an environment of heightened uncertainty and likely continued market volatility.

-Trump has made his anti- illegal immigrant status clear

Trump has proposed a much tougher stance on illegal immigrants but has noted that legal immigrants are welcome and will be treated fairly. Clearly, Trump’s most controversial plan is the idea of building a wall along the Mexican border. However, it is unlikely that this plan will go through and will instead be consigned to part of an election campaign that sought to steal the limelight with extremist policies.

For National Security purposes Trump has stated his intention to increase screening of individuals entering the country and has suggested a temporary suspension of immigration from regions where safe and adequate screening cannot occur.  Immigrants account for large portion of the total labour force, and low-skilled immigrants typically work in low-skilled jobs such as manufacturing, transportation and home services.  A more anti-immigration policy would likely be negative for US growth in the long run.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.