U.S. Dollar Strengthens, Set for Weekly Gain Amid Trump’s Return and Fed Rate Decisions

The U.S. dollar found renewed strength on Friday, looking to wrap up a week marked by high volatility with a modest gain. The currency’s movement reflects global markets processing the implications of Donald Trump’s return to the White House, with significant effects anticipated on U.S. economic policy and interest rate expectations.

Key Developments in Currency Markets:

1. Dollar Recovery
   After a turbulent session, the dollar index, which measures the greenback against a basket of six major currencies, ticked up 0.1% to 104.50. This marks a 0.2% increase for the week, recovering from Thursday’s decline when traders closed out positions following Trump’s election victory. Wednesday saw the dollar’s most substantial rally in over two years, driven by the so-called “Trump trades.”
2. U.S. Federal Reserve’s Rate Cut
   The Federal Reserve delivered a widely expected 25 basis point interest rate cut on Thursday but indicated a cautious and patient approach to further easing. However, Trump’s election win has introduced uncertainty to the Fed’s rate path, as his plans to impose hefty tariffs on Chinese imports are likely to drive inflationary pressures. Traders have adjusted their bets, reducing expectations for additional rate cuts next year.
3. European Currencies Under Pressure

• British Pound (Sterling): The pound traded at $1.2970, rebounding from a three-month low earlier in the week. On Thursday, sterling rallied 0.8% after the Bank of England reduced interest rates but projected a faster recovery in inflation and economic growth than previously expected.
• Euro: The euro fell 0.17% to $1.0782, en route to a weekly decline of 0.3%. The currency was weighed down by political turmoil in Germany, where Chancellor Olaf Scholz’s coalition government collapsed, intensifying economic and political uncertainty in the eurozone.

1. Asian Currencies and China’s Economic Outlook
   Anticipation of China’s economic stimulus measures is high as the five-day meeting of the Standing Committee of the National People’s Congress wraps up. Investors are hopeful for fiscal support announcements, which could boost the yuan and positively influence the Australian and New Zealand dollars, often seen as proxies for the Chinese currency.

• Chinese Yuan: The onshore yuan weakened slightly to 7.1476 per dollar, while the offshore yuan dipped 0.08% to 7.1558 per dollar. Concerns about Trump’s proposed 60% tariffs on Chinese imports kept pressure on the yuan.
• Australian Dollar: The Aussie fell 0.4% to $0.6655 but remained on track for a 1.85% weekly gain, its strongest in over two months, supported by improved global risk sentiment.
• New Zealand Dollar: The kiwi eased 0.24% to $0.6008 yet was set to end the week with a 1% gain.

Global Sentiment and Economic Support

Friday’s primary focus is the conclusion of China’s National People’s Congress Standing Committee meeting. Expectations of further economic support have helped mitigate some negative sentiment around Trump’s trade policies. The proposed tariffs remain a key risk factor for Chinese assets and global markets.

Overall, while the U.S. dollar shows resilience, markets continue to assess the broader economic implications of Trump’s policies and the Federal Reserve’s measured approach to rate adjustments. Global currency markets will be closely monitoring developments from China and any shifts in fiscal and trade policy from the new U.S. administration.