2 Things Investors Should Consider When Trading In The FX Markets With The Trump 2.0 Presidency 

The US presidential election in November resulted in a fairly clear winner in Donald Trump. Since then, he has been pledging to impose trade tariffs on countries that he feels are competing unfairly with the US.  

Indeed, the second term of Donald Trump’s administration will take place in a world that is far different from the one he was first elected into in 2016. Market commentators are already dubbing his upcoming second presidency as “Trump 2.0”. 

His presidency will likely have a big impact on Asian countries given how trade-dependent the region is. His potential policies were a topic of conversation at the Franklin Templeton 2025 Investment Outlook: Perspectives from Asia and Beyond on 27 November 2024.   

With a panel of three portfolio managers, there were a lot of discussions on how foreign exchange markets in the region might fare in relation to the US dollar under a Trump presidency. Here are two things investors should consider when trading in FX markets as we head into 2025 and a Trump 2.0 presidency. 

Read Also: Donald Trump Is US President (Again). Here Are 5 Things That Singapore Investors Should Take Note Of 

 #1 Stronger US Dollar Plus Higher Yields  

The US Dollar has been gaining strength since Trump was declared the winner of the US presidential election. With Trump expected to impose trade tariffs once he takes office, the US may see higher inflation on the cusp and thus, prevent the US Federal Reserve from making interest rate cuts any time soon. 

Indeed, the markets already foresee an upcoming rate cut by the US Federal Reserve before 2024 ends. US household net worth has also hit a record high, supported by a booming stock market and increases in house prices. The US 10-Year Treasury yield is also rising, with corporate spreads tightening. 

These are all driving the strong US dollar environment but in fact, Asian exporters are well-placed to benefit from this. The strengthening US dollar and announcements to impose tariffs – declared by Trump on Truth Social – don’t surprise the market anymore. 

The reality of this is that absolute yields on offer for investors are still high today, with the US 10-Year Treasury offering around 4% versus its 10-year average of 2.5%, a significant yield uplift. Of course, this higher level of absolute yields may not be here to stay as the Fed starts to pivot.  

Despite that, it’s still an environment that will be beneficial for income-focused investors. There are still pockets of opportunities, including in convertible bonds as well as sectors like the US utilities and electricity providers.  

 #2 Potential For Stronger Japanese Yen 

The Bank of Japan (BOJ)’s interest rate path  is something that global investors have been keeping a close eye on this year. It’s likely to stay that way in 2025 as the Japanese economy emerges from deflation into an inflationary environment. 

Japan is already facing the reality of and dealing with a weaker Japanese Yen. But the country won’t want a continuously weaker currency and will want to welcome  a stronger Yen in 2025 as the BOJ looks to inflation data and wage growth to determine its rate path. 

It’s also unlikely that Trump will focus too much on Japan in his tariff programme given his primary focus appears to be on China, Mexico, and Canada. This should mean that president-elect Trump’s presidency probably won’t derail the BOJ’s rate path. 

The US Fed will likely be more focused on its country’s economic growth, so both Trump and the US central bank will likely be occupied there than take issue with where the BOJ is headed on rates and how that might impact the Yen.  

Gearing Up For Trump’s Second Term 

Investors will, of course, have a lot more to watch out for once Donald Trump takes up residence in the White House for the second time in January 2025. 

While Asia will be impacted by his various trade policies, there may also be pockets of opportunities for investors to take advantage of. Specifically a stronger US Dollar alongside a stronger Japanese Yen could be two potential results that investors can expect during 2025. 

Read Also: 4 Stocks That Will Be In Donald Trump 2.0 White House 

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