Post-election surge: USD strength and market shifts amid central bank rate cuts

Since the U.S. Presidential election, we’ve witnessed a significant rally in US equity markets, and USD appreciation against other major currencies. Analyzing data points prior to the US election results, beginning on Monday, Nov 4^th, into early US morning on Wednesday, Nov 6^th (when the Trump victory was confirmed), and ending the following week on Tuesday, Nov 12^th, the Dow Jones Industrial Average (DJIA) was up 6.74%.  During that one-week period, the DJIA low was on Nov 4^th, of 41,678, followed by high on Nov 11^th of 44,486. During that same timeframe, EURUSD reached a high of 1.0937 on Nov. 5^th and a low on Nov 12^th of 1.0595. EUR depreciated, against USD 3.66%. Additionally, USDJPY reached a low of on Nov 5^th of 151.30 and a high on Nov 12^th of 154.92, representing a 2.4% USD appreciation against JPY.

Additionally, two major central banks continued their rate reduction monetary policies, as inflation continued its downward trend. Last Thursday, Nov. 7^th, both the Federal Reserve (Fed) and the Bank of England (BOE) announced .25% interest rate cuts. The Fed’s decision brought the benchmark federal funds rate down to a range of 4.5% - 4.75%. The BOE reduced its key interest rate to 4.75% from 5%.

We’ve also witnessed longer dated US bond yields on the rise. The increase has pushed borrowing costs on 30-Year fixed mortgages higher, over the past couple months to 6.80%, as 10-year US Treasury Bonds are used as the benchmark for mortgages.

Prior to the election results, there was a growing opinion that a series of smaller rate cuts (.25% each) through 2025, would result in a federal funds rate of approximately 3.5%, by end of 2025.

The attached graphs illustrate USD appreciation against other G-4 currencies (EUR- Euro, GBP – British Pound and JPY- Japanese Yen). The data is compiled from TradtionData’s end of day New York, FX spot-mid prices. You can see USD appreciation from the Nov 1^st – Nov 12^th, as well as USD spike on Nov 6^th; the day after the election. GBP edged higher on Nov 7^th after the rate cut announcement, pointing to a continued downward trend in inflation.