How would currency markets react to Trump’s return? The expert explained | Business

How could different election results affect the euro/US dollar relationship and what would this mean for the European Union? It is predicted that the return to power of the Republican D. Trump would strengthen the dollar, but for a long time? How to protect yourself from possible exchange rate fluctuations?

Which scenario is more favorable for Europe?

Historically, Republican presidents have been associated with greater exchange rate volatility than Democratic presidential candidates.

While in power, Republican candidate D.Trump emphasized that a strong dollar is important for economic stability and the well-being of the country. In order to strengthen the US economy and increase the country’s international trade advantage, his administration pursued an aggressive trade policy, including imposing tariffs on China and other trading partners. Tariff policies and trade disputes with other countries have created a lot of uncertainty in financial markets and this has affected the fluctuation of the dollar exchange rate.

“Similar instability can be expected if Trump were to return to power. The dollar is likely to strengthen briefly, as investors would traditionally look to the dollar as a guarantor of safety during this period of instability. This would increase the demand for the dollar and its value. However, it is likely that in the long run, the constant tension due to the trade policy would weaken the dollar”, thinks Marius Ivanauskas, head of sales and business development of the international payments company “ArcaPay”.

Democratic presidential candidate J. Biden emphasizes his desire to strengthen international cooperation and diplomatic relations with European allies and other countries. The expert claims that such a policy could reduce tensions and promote mutual economic growth.

“After the re-election of the current US president, one can expect a weakening of the dollar. A more favorable trade policy would mean more confidence and less need to protect one’s capital, which would reduce demand for the dollar. This scenario, seeing the partnership between the EU and the US and joint efforts to solve global problems, would likely create the conditions for a strengthening of the euro. This is not an axiom, but in most cases, when the dollar weakens, the value of the euro increases”, observes M. Ivanauskas.

Historical perspective

The exchange rate of the euro and the US dollar is greatly influenced not only by the politics of the countries, but also by the general economic situation in the world, the monetary policy implemented by the European Central Bank and the US Federal Reserve System, and international events.

in 2000 After Republican George W. Bush became president of the United States, tax-cutting policies were introduced and this initially led to a strengthening of the dollar. However, in the long term, due to the rising US national debt and the cost of the war in Iraq, the dollar began to weaken against the euro, which at the time gained more stability due to economic growth in the eurozone.

in 2008 The US presidential election coincided with the great financial crisis. When Democrat Barack Obama came to power, the dollar initially weakened due to the crisis. After the interventions of the Central Bank and the decisions taken by the presidential administration to revive the economy, the dollar stabilized.

Donald Trump’s 2016 US presidential election sparked a sharp rally in the dollar as markets reacted to his promised tax breaks and infrastructure spending. However, his protectionist trade policies and frequent conflicts with trading partners eventually caused the dollar to fluctuate. The Eurozone economy at that time, despite the political uncertainty, maintained relative stability, as the European Central Bank also acted actively to support economic growth.

Which sectors are affected the most?

According to the expert, exchange rate fluctuations are mostly affected by the energy, tourism, technology and agriculture sectors.

“Some sectors benefit from a stronger dollar, others benefit from a strong euro. As you know, most oil and gas transactions in the world are done in dollars. Therefore, a strengthening euro against the dollar can make oil and gas imports to Europe cheaper, allowing European companies to buy more at a lower price. A strong euro has the opposite effect on the tourism sector – a strengthening currency makes the country unattractive to tourists, who can afford much less for the amount of money they have,” says the sales and business development manager of the ArcaPay company.

According to him, in the agricultural sector, fluctuations in the exchange rate between the euro and the dollar can affect the price of agricultural products and raw materials such as fertilizers and pesticides. Like gas and oil, it is also usually calculated in dollars, so a stronger euro against the dollar could make these raw materials cheaper for European farmers.

In the technology sector, fluctuations in the exchange rate between the euro and the dollar can affect the cost of goods and services for both European and US companies. As the euro strengthens against the dollar, goods and services from European companies can become more expensive for US customers, and as the euro weakens, they tend to be cheaper.

“Indicators such as GDP growth, inflation and unemployment can also affect the exchange rate between the euro and the US dollar and affect companies in various sectors. A stronger euro zone economy compared to the USA can lead to a stronger euro and lower demand for European goods and services, respectively, a declining economy also weakens the euro and increases demand,” comments M.Ivanauskas.

Although the 60th US presidential election will not be held until November, currency traders and investors are already trying to predict how the currency market will react to these upcoming important political events. As the election date approaches, investors often become more cautious and tend to think carefully about their investment strategies. According to the expert, there is more than one way for companies to protect themselves from exchange rate fluctuations.

“Firstly, companies can use financial instruments such as forward exchange contracts to lock in the exchange rate and reduce the impact of currency fluctuations on their business. Another way is diversification. Companies and investors can diversify their portfolios across currencies and regions. Other effective ways to protect yourself from unfavorable fluctuations are flexible pricing and supply chain management,” says M. Ivanauskas, representative of the ArcaPay company.