FX Daily: The Specter of Trump Hangs Over the FX Market

Looking at global currency markets, we could be forgiven for thinking that the market is starting to position itself for a Donald Trump victory. Most emerging currencies are under pressure. And you can see why. In a fun interview with Bloomberg on Tuesday, Trump used tariffs extensively if he managed to return to the White House. As the columnists said, no one should be surprised if this happens. The most immediate victim of this interview was the Mexican peso. When it comes to nearshoring, Donald Trump wants US companies to shorten supply chains not just in Mexico, but in the US itself. He intends to use tariffs to ensure that happens. Furthermore, when it comes to broader tariffs – especially on the European auto industry – Trump said 10% tariffs would not be enough.

With the elections less than three weeks away, it appears that investors will be reluctant to position themselves against such threats, although the outcome of the elections remains very uncertain. If you haven’t seen it yet, take a look at our market scenario analysis for the US elections.

For the US today, the highlight will be US retail sales data for September and weekly unemployment claims. Retail sales are expected to remain reasonable, with the control group at 0.3% MoM. Weekly initial orders are expected to remain high at 258,000, but uncertainty over the impact of Hurricane Helene and the port strike will prevent the market from overreacting to this data.

Given the euro’s large weight in the DXY, the DXY could fall to 103.00/103.20 if we are right with our ECB/euro analysis today, but we suspect the dollar finds decent support on any dips now.

Chris Turner