On Monday, the dollar continued to strengthen amidst the market's heated focus on the "Trump trade," with the dollar spot index rising by 0.7% to its highest level since November 2023. Traders expect that Trump's trade policies will further bolster the dollar, suppressing other major currencies, including the euro. The yen was particularly weak among developed countries' currencies, with the dollar rising 0.70% against the yen to 153.71 yen, exhibiting a steady upward trend throughout the day. The euro fell 0.60% against the dollar to $1.0654; the pound fell 0.40% to $1.2870; the dollar rose 0.55% against the Swiss franc to 0.8805. The dollar index's gains narrowed to 0.5% by the end of the session.
The dollar's strength is also supported by Federal Reserve policy. After a 25 basis point rate cut by the Fed last week, there was no clear indication about future rate cuts, but robust U.S. economic growth continues to support the strong dollar. Data shows that the trend of slowing growth in other major global economies is prompting local central banks to lower borrowing costs, increasing pressure on their currencies. According to the Commodity Futures Trading Commission (CFTC), in the week ending November 5, hedge funds and asset management companies held $17.6 billion in bullish dollar positions, reflecting market optimism for the dollar.
Market analysis suggests that Trump's election and his policies pushing inflation could shorten the Federal Reserve's easing cycle, while the European Central Bank may continue its accommodative policies. Meera Chandan, a strategist at JPMorgan, pointed out that Republicans could control both houses of Congress, which would aid Trump's tax cuts, immigration, and trade policies, further supporting the dollar. Chandan wrote in a report: "The election results amplify the dollar's exceptionalism. The dollar possesses elements that other currencies lack: strong economic growth, high yields, and stock market defensiveness."
In the next three months, the euro may fall to $1.05 against the dollar, or even approach parity. Trump's policy direction, tariff measures, and their impact on global economic growth are becoming a hot topic among investors, further increasing bullish dollar positions.
