Following Donald Trump’s win in the US presidential election, global markets have shown a swift and significant response, reflecting investor optimism for anticipated pro-business policies but also apprehension around potential trade and inflationary impacts.
European markets reacted relatively positively, with the UK’s FTSE 100 index rising by 1.5% at opening and reverting to its opening price as the day progressed and the election results were confirmed. The initial rally reflected investor relief at the removal of electoral uncertainty, with many market participants viewing a Trump administration as more favourable to growth-oriented policies, particularly given the anticipated Republican control of Congress.
In the US, investors welcomed a unified Republican government that is likely to implement business-friendly tax reforms. Analysts anticipate that Trump’s planned corporate tax cuts will increase corporate profitability, providing a tailwind for US equities, with strategists noting that lower taxes could directly boost company earnings, making equities more attractive.
The US dollar surged in value against other currencies, driven by expectations of a lower tax environment and higher inflation resulting from Trump’s proposed trade tariffs. With the dollar appreciating, the British pound fell approximately 1% to $1.292. Analysts suggest the strong dollar reflects both the immediate response to Trump’s economic policies and an expectation of higher interest rates, as the Federal Reserve may need to counter inflationary pressures. With economists raising their inflation forecasts, due anticipated tariffs, import costs may increase.
This dollar strength has important implications for global fixed-income markets, as US treasuries remain the benchmark. Potentially higher inflation could lead to a steepening of the yield curve, with long-term yields rising relative to short-term yields; a trend that can signal either strong economic growth or a higher-rate environment. Given the global influence of US debt, these shifts may create short-term volatility across international bond markets. Investors however appear to be monitoring how these currency moves impact fixed-income assets, and they will adjust their positioning accordingly if the outlook shifts.
Trump’s trade policy, especially his emphasis on imposing higher tariffs on global imports, has prompted caution among economic experts on the implications for international trade dynamics and global growth. The National Institute of Economic and Social Research (NIESR) projected a potential 1% reduction in global economic growth over the next two years, driven by the dampening effects of increased US tariffs. For the UK, NIESR projects a growth reduction from 1.2% to 0.4% by 2025, due to the potential disruption to its trade flows and increased import costs. Economists warn that the UK could be particularly affected, as higher tariffs could strain its economic recovery amid broader global challenges. Sectors expected to benefit from regulatory rollbacks, including energy, finance, and defence may gain traction if Trump’s deregulatory stance from his previous administration is reinstated.
Asian markets displayed a diverse response to Trump’s victory. Japan’s Nikkei 225 surged by 2.6%, and Australia’s S&P/ASX 200 rose by 0.81%, as investors welcomed the prospect of a strengthened dollar and potential US demand growth. However, Chinese indices, including the Hang Seng China Enterprises Index and the Shanghai Composite Index, dipped sharply, reflecting concerns about renewed trade friction between the US and China. A second Trump administration could see a return to contentious US-China relations, with tariffs and policy conflicts potentially pressuring Chinese export sectors.
As markets continue to digest the election outcome, investors will closely monitor upcoming policy announcements, particularly regarding trade, taxes, and immigration. The combination of expansionary fiscal policy and protectionist trade measures is expected to shape inflation and interest rate trajectories, which in turn will impact currency markets and global growth outlooks. Trump’s policy orientation toward economic nationalism suggests a mixed bag for the global economy: while tax cuts and deregulation may spur US growth, heightened tariffs pose challenges for international trade and emerging markets, particularly those with direct exposure to US demand.
