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Amid growing speculation over the possible return of Donald Trump to the White House, the US dollar strengthened sharply on Wednesday, pushing the Indian rupee to a historic low of 84.25 against the dollar. This development, as per ANI, has fuelled market expectations of increased government spending under a Trump administration, which could lead to a rise in the US fiscal deficit.
According to ANI, investors anticipate that Trump's policies, known for prioritising domestic infrastructure projects, would likely push the fiscal boundaries and increase government borrowing needs. This outlook has already led to a stronger dollar, reaching levels last seen in July.
The Indian rupee, in response, declined to an unprecedented low of 84.25 against the dollar before recovering slightly to 84.18, as reported at the time of writing. Market experts attribute the dollar's rally to expectations that a Trump administration would initiate significant government expenditure aimed at economic stimulation. Such fiscal measures could potentially widen the US deficit and lead to further borrowing, driving the demand for US Treasury bonds. In turn, this could elevate Treasury yields, as investors seek higher returns to absorb the increased debt load, thus strengthening the appeal of dollar-denominated assets.
Several other major currencies have already felt the impact of the strengthening dollar. The Mexican Peso, for example, has dropped by 3 per cent against the dollar, while both the Japanese Yen and the Euro have also weakened. Higher Treasury yields, according to experts cited by ANI, not only support the dollar's rise but also create downward pressure on global currencies, particularly those of emerging markets such as India.
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Ajay Bagga, a banking and market expert, remarked to ANI, "Trump trades are dominating the markets. With Trump's win in North Carolina, his chances of reaching the 270 Electoral College votes have increased. His policies would likely expand the US fiscal deficit, leading to higher Treasury yields. As a result, the US dollar has surged to levels last seen in July, with currencies like the Mexican Peso down by 3 per cent, and the Yen and Euro also showing declines. This is a âTrump trade' as markets factor in a strong probability of a Trump victory."
The Indian rupee has been on a downward trend in response to the strengthening dollar, which highlights the tough environment for emerging markets amidst global market volatility and a tightening US monetary policy. The Reserve Bank of India (RBI) has previously intervened in the forex markets to stabilise the rupee. However, as ANI points out, further measures may become necessary should the dollar's strength persist unchecked.
(With inputs from ANI)
