USD: Strengthening Amidst Political Developments
Following Donald Trump’s decisive victory in the 2024 U.S. presidential election, the U.S. dollar initially displayed significant strength. Investors responded positively to the anticipated drastic interest rate cuts proposed by the new administration, which aimed to stimulate economic growth by lowering borrowing costs. The promise of aggressive fiscal stimulus and regulatory rollbacks also contributed to a strong rally in the dollar.
However, analysts indicate that the potential for the U.S. dollar to rise further may be limited. They suggest that Trump’s policies might be diluted, and as a result, the dollar’s strength may not be sustainable in the long term. Key points include:
- Import Tariffs May Be Less Comprehensive: Potential trade policies may not be as extensive as initially feared, reducing the inflationary impact on the economy.
- Limited Wage Pressure from Immigration Policies: Deportations may not be significant enough to create substantial wage increases.
- Inflationary Impact Will Be Limited: The Federal Reserve may have little need to raise interest rates aggressively.
Prediction: The dollar may gain short-term strength as the markets adapt to the new administration’s policies. However, if these policies are weakened or if economic data falls short of expectations, the dollar could experience corrections. Commerzbank projects that the EUR/USD exchange rate will reach 1.05 in March 2025, before rising to 1.07 by the end of that year.
GBP: Sterling Faces Pressure from Economic Uncertainty
The British pound has fallen below the $1.2900 mark due to a risk-averse sentiment in the markets. Concerns about global economic conditions and a strengthening U.S. dollar have pressured the pound. Additionally, fears that President-elect Donald Trump may impose tariffs have weakened investors’ appetite for risk, leading to a decline in the GBP/USD pair.
Technical analysis indicates:
- Downward Tilt: The GBP/USD is slightly tilted to the downside, with key support at 1.2833.
- Potential Bearish Shift: A break below major support may shift the bias bearish, targeting the August low of 1.2664.
- Need for Momentum: Buyers require a close above the 100-day Simple Moving Average (SMA) at 1.2992 to regain upward momentum toward 1.3099.
Prediction: The pound could remain under pressure this month. Positive developments in trade talks or stronger UK economic data might provide some support, but ongoing global uncertainties and a strong dollar are likely to limit any significant recovery.
EUR: Euro Under Strain Amid Economic Slowdown
The euro has weakened against the dollar, reflecting concerns over the Eurozone’s economic performance and the impact of U.S. policy shifts. The strong U.S. dollar and potential changes in investor sentiment have challenged the euro’s stability.
Analysts suggest that while Trump’s policies are inflationary, their impact will be limited, and the Federal Reserve may have little need to raise interest rates. This scenario could limit the euro’s potential to strengthen against the dollar.
Prediction: The euro is likely to experience downward pressure this month. While any signs of economic improvement or decisive action from the European Central Bank (ECB) could provide temporary relief, the overall trend may still be bearish. It is projected that the EUR/USD will reach 1.05 by March 2025, followed by a recovery to 1.07 by the end of that year.
Gold: Prices Fluctuate Amid Policy Uncertainty
Gold prices have fallen significantly following Trump’s victory. A stronger U.S. dollar and rising bond yields have diminished gold’s attractiveness as a safe-haven asset. As investors become more optimistic about economic growth, attention is moving away from gold, resulting in a price drop of over $60 from last week’s close. Currently, gold is trading in the $2,610 range.
Factors influencing gold prices include:
- Stronger Dollar: Since gold is priced and traded in U.S. dollars, a stronger dollar causes its price to fall.
- Trump’s Dollar-Positive Policies: Expectations of economic growth and inflation due to Trump’s policies are influencing investor behavior.
- Competition from Bitcoin: The surge in Bitcoin and other cryptocurrencies is attracting investment away from gold.
Prediction: Gold prices may face pressure this month due to a strong dollar and heightened investor risk appetite. However, any escalation in geopolitical tensions or inflation concerns could lead to a rebound in gold prices..
Bitcoin: Surging Amid Market Optimism and Regulatory Developments
Bitcoin has reached new all-time highs, trading above $89,000. The surge of the cryptocurrency is attributed to several factors influenced by Trump’s victory.
- Inflation Hedge: Investors are turning to Bitcoin as a hedge against potential inflation resulting from anticipated interest rate cuts and fiscal stimulus.
- Regulatory Outlook: Expectations that the new administration may adopt a more favorable stance toward cryptocurrencies have boosted investor confidence. There is speculation that Bitcoin could reach $100,000 by the end of 2024.
- Institutional Adoption: Increased interest from institutional investors and asset managers urging clients to add Bitcoin exposure is driving demand.
Prediction:Bitcoin may continue to rise this month if demand stays strong and regulatory developments are favorable. However, investors should remain cautious due to the cryptocurrency’s inherent volatility.
KES: Kenyan Shilling Faces Challenges Amid Reduced Remittances
The Kenyan Shilling has experienced depreciation pressures due to a strong U.S. dollar and reduced remittances from the diaspora. Money sent home by Kenyans abroad fell by over KSh1 billion in September compared to the previous month.
Key factors:
- Reduced Remittances: September’s remittance inflows totaled $418.5 million, down 2% from August.
- Dependence on the U.S.: The U.S. remains the largest source of remittances to Kenya, accounting for 55.4% in September 2024.
- Impact on Foreign Exchange Market: Reduced remittances affect the current account and the foreign exchange market, putting pressure on the KES.
Prediction: The Kenyan Shilling may face ongoing pressure this month. Initiatives to increase remittances and export earnings, along with support from the central bank, could help alleviate depreciation.
TZS: Tanzanian Shilling Shows Signs of Stabilization
The dollar shortage crisis in Tanzania is improving, indicating that the worst may be over for the Tanzanian Shilling. Actions taken by the Bank of Tanzania have enhanced foreign exchange liquidity.
Key developments:
- Improved Dollar Availability: Banks and currency exchange outlets have reported increased availability of U.S. dollars compared to previous months.
- Policy Interventions: The government introduced policy changes to reduce dollar demand and support the local currency, including prohibiting foreign currency transactions for domestic trade.
- Economic Factors: The nation’s balance of payments has benefited from favorable harvests and rising global commodity prices, particularly gold.
Prediction: The TZS may continue to stabilize this month if positive trends persist. Ongoing policy measures and economic growth will be crucial for maintaining currency stability.
MWK: Malawian Kwacha Under Pressure Despite Policy Efforts
The Malawian Kwacha remains under pressure due to economic difficulties and limited foreign exchange reserves. The currency has experienced exchange-rate instability following a significant devaluation of 44% in late 2023.
Key challenges:
- Economic Uncertainty: Malawi’s economic outlook remains highly uncertain, with high inflation and the expected impact of the El Niño weather event affecting agriculture.
- Debt Restructuring: The government is pursuing debt restructuring to keep funding channels open.
- Risk of Protests: Endemic corruption, rising poverty, and limited economic opportunities may provoke public protests in 2024.
Prediction: Without significant improvements in export revenues or effective policy interventions, the MWK may continue to depreciate this month. Diversifying the economy and attracting foreign investment are essential steps toward stabilization.
RWF: Rwandan Franc Hit by Dollar Shortage and Depreciation
Rwanda is facing a shortage of dollars as the franc depreciates and inflation concerns rise. Forex bureaus in Kigali have stopped exchanging francs for dollars for regular customers, forcing importers to resort to the black market.
Key issues:
- Dollar Scarcity: Traders are buying dollars at rates as high as Rwf1,400 per unit, up from around Rwf1,350 a few months ago.
- Impact on Importers: Businesses struggle to obtain the necessary dollars from banks, affecting trade and supply chains.
- Central Bank Actions: The National Bank of Rwanda has increased official reserves and projects inflation within the 2-8% band but faces challenges in stabilizing the currency.
Prediction: The Rwandan Franc may continue to weaken this month if dollar scarcity persists. Central bank interventions and efforts to boost exports are crucial for addressing the currency’s depreciation.
Conclusion
The global financial markets are navigating the impacts of Donald Trump’s victory and the anticipated policy changes. Key developments include:
- U.S. Dollar: Initially strengthened but may face limitations due to potential dilution of policies and limited inflationary impact.
- British Pound and Euro: Facing pressure due to a strong dollar, economic uncertainties, and potential changes in trade relations.
- Gold: Prices have declined as investors shift towards equities and cryptocurrencies amid optimism over economic growth.
- Bitcoin: Demand is rising as traders anticipate favorable regulatory conditions and seek inflation hedges, with predictions of reaching $100,000.
- Emerging Market Currencies: The KES is challenged by reduced remittances; the TZS shows signs of stabilization due to policy measures; the MWK continues to struggle amid economic difficulties; the RWF is affected by dollar scarcity and a weakening franc.