Donald Trump has won an extraordinary victory in the US Presidential election. Here’s how it could affect your finances.
The US Presidential election has reached an extraordinary conclusion with the election of former President Donald Trump, who returns to office in January 2025 after four years away from the White House.
While the election of the leader of a foreign country is not often one to consider for our finances here in the UK, the US economy is so large and influential in global terms that it can have an impact on our daily lives.
So what are the key things to have in mind, and what could a new Trump Presidency mean for your money?
Market reaction
The most tangible impact of the Trump victory has been a noticeable and immediate response from the global bond and currency markets.
The US 10-year treasury yield, for example, moved higher once a Trump victory became clearer. This is a signal from investors that it foresees more debt-fuelled spending from the world’s largest economy, thanks chiefly to Trump’s promise of tax cuts.
Alongside this, the US Dollar surged to its highest level in two years. This is largely for the same reason as the bond yield increase – markets see more state spending on the cards.
The implication here is that more spending will lead to renewed inflation. Renewed inflation will force central banks such as the US Federal Reserve to keep its base rate higher for longer.
This unfortunately does have an impact on the UK economy – principally because so much of the world’s goods (think everything from copper to oil and beyond) are priced in dollar terms.
This would have the effect of ‘importing’ inflation to the UK because the stuff we buy as an economy becomes relatively more expensive.
For those of us who like to holiday stateside (or in any other country where the local currency is pegged to the value of the dollar) this could make trips more expensive too.
Higher interest rates
The net result then is that households in the UK could see higher inflation once again. This in turn will potentially affect the Bank of England’s rate decisions moving forward and could leave households facing higher debt costs for longer.
This is something that is now not unfamiliar to households up and down the UK who have faced a cost-of-living crisis in the past two years.
While many have had to go through the pain of remortgaging at much higher rates, many more are still in line to face rising borrowing costs for their homes, especially now if global inflation becomes more persistent at higher levels.
The one upshot with these plans is that President Elect Trump’s proposals are likely to benefit US corporations, and this in turn will potentially fuel a new stock market rally, something Trump in his previous term was always at pains to point out.
But this is ultimately speculative as we don’t know what will happen in the near- or long-term future. Markets are moved by a huge variety of factors.
For those of us considering portfolio positioning in light of these major macroeconomic events, it is essential to speak to an adviser about any concerns or other questions regarding the direction of markets. Don’t hesitate to get in touch.
