Dollar sees best day in 4 years as Trump wins 2024 election; euro plummets

The EUR/USD exchange rate remained in focus in wake of reports of former US president Donald Trump's return to the White House.

Trump’s lead, particularly in key states like Georgia, North Carolina, and Pennsylvania, intensified investor interest in the dollar, which recorded its most substantial one-day gain since March 2020, rising 1.5% against other major currencies.

On the other hand, the euro was the worst-hit among the G10 currencies.

It fell 1.75% to $1.0740 as of 8 am CET, setting it on track for its worst day since March 2020.

At 11:18 am CET on Wednesday, the EUR/USD exchange rate showed a slight recovery to 1.0749 on Wednesday after dipping to a four-month low of nearly 1.0700.

Dollar surges on expectations of Trump’s tariff-heavy policies

FX markets analyst Kyle Chapman of Ballinger Group attributed the dollar’s rise to market positioning for potential Trump-led policies.

“The dollar has rocketed across the board in its best day in four years,” Chapman noted.

He emphasized that Trump’s expected economic approach, which includes inflationary pressures and tariffs, is a major factor.

With the New York Times estimating a more than 95% chance of Trump’s victory, the markets appear to be pricing in the former president’s influence on US trade and economic direction.

Chapman’s comments underscore the market’s anticipation of a more protectionist US trade stance, which could impact global trade dynamics.

A Trump victory, many believe, could mean an extension of his first-term trade policies, possibly affecting a broader range of US trade partners, not just China.

This anticipation is driving dollar strength as investors seek refuge in the US currency, now seen as more resilient under Trump’s leadership.

Euro weakens amid fears of US trade restrictions

The euro has been hit hard amid these developments, as it remains the weakest of the G10 currencies.

Ulrich Leuchtmann, Commerzbank’s Head of FX and Commodity Research, explained that Trump’s restrictive trade policies are expected to disproportionately impact the euro area.

“The euro area is likely to suffer disproportionately from a restrictive US trade policy,” Leuchtmann noted, emphasizing that export-driven European economies, particularly Germany, would face challenges in maintaining growth.

Germany’s reliance on exports has been central to the eurozone’s economic strength, but a US pivot away from open trade flows could shift this dynamic, threatening to worsen the eurozone’s growth disadvantage.

This scenario could deepen the euro’s struggles in the coming months, especially if US tariffs are imposed or trade routes are disrupted.

Analysts warn of long-term pressures on EUR/USD

Analysts see further declines for the euro in the near term, with ING’s FX analyst Chris Turner suggesting a challenging future for EUR/USD under Trump’s trade policies.

“This would be the worst scenario for EUR/USD – faced with renewed trade wars yet without the support to global growth that extended US tax cuts could deliver,” Turner remarked.

He projected that if this trend continues, EUR/USD could fall below parity by late 2025.

For now, the euro faces near-term pressure, with analysts expecting further dips if Trump’s path to the White House remains clear.

While some market pricing already accounted for Trump’s possible victory, there’s consensus that EUR/USD may approach the 1.0550/0600 range in the coming days if the dollar continues to rally, especially given the eurozone’s limited support for growth amid these conditions.