Donald Trump’s Potential Return Affects Global Currencies
Indian Rupee Hits Record Low
In New Delhi, the possibility of Donald Trump returning to the White House has caused the US dollar to strengthen, while the Indian rupee hit a record low of 84.25 against the dollar. This has raised expectations of increased government spending under a Trump administration, potentially leading to a higher US fiscal deficit.
Investors believe Trump’s policies, which focus on domestic infrastructure, could push fiscal limits and increase borrowing needs. This has already caused the dollar to rise to levels last seen in July. The Indian rupee, however, slightly recovered to 84.18.
Market experts suggest that a Trump presidency could significantly increase government spending to stimulate the economy, widening the US fiscal deficit and increasing government borrowing. This would lead to more US Treasury issuance, raising Treasury yields as investors demand higher returns. Higher yields make dollar-denominated assets more attractive, boosting demand for the dollar.
The Mexican Peso has dropped 3% against the dollar, while the Japanese Yen and Euro have also weakened. Higher Treasury yields strengthen the dollar and pressure global currencies, especially those of emerging markets like India.
Ajay Bagga, a banking and market expert, noted that “Trump Trades” are active in the markets. With Trump winning North Carolina, his chances of securing 270 Electoral College votes increase. Trump’s policies are expected to lead to a higher US fiscal deficit, causing US Treasury yields to rise and the dollar to reach July levels. The Mexican Peso is down 3%, and the Yen and Euro are also down, indicating a “Trump Trade” as markets anticipate a Trump victory.
In India, the rupee’s depreciation reflects a challenging environment for emerging markets, influenced by external pressures like tightening US monetary policy and global market volatility. The Reserve Bank of India has previously intervened in the forex market to stabilize the rupee, but further measures may be needed if the dollar’s strength continues.
Doubts Revealed
Donald Trump -: Donald Trump is a businessman and was the 45th President of the United States. He is known for his unique style of leadership and policies that often focus on America first.
US dollar -: The US dollar is the official currency of the United States. It is one of the most widely used currencies in the world for international trade and finance.
Indian rupee -: The Indian rupee is the official currency of India. It is used for all transactions within the country and is represented by the symbol ₹.
Record low -: A record low means that the value of something, like a currency, has fallen to its lowest point ever. In this case, the Indian rupee has become less valuable compared to the US dollar.
Fiscal deficit -: A fiscal deficit occurs when a government’s spending is more than its income. This means the government needs to borrow money to cover the difference.
US Treasury issuance -: US Treasury issuance refers to the process of the US government selling bonds to raise money. These bonds are like loans that investors give to the government, which they pay back with interest.
Treasury yields -: Treasury yields are the interest rates that the government pays to investors who buy its bonds. Higher yields mean the government pays more interest, which can make the US dollar stronger.
Emerging markets -: Emerging markets are countries that are in the process of becoming more advanced economically. India is considered an emerging market because it is growing rapidly but still developing.