FX Focus: Dollar on road to recover from heavy losses after Trump's victory

Currency markets struggled for direction on Wednesday (9 November), after Donald Trump secured an unlikely win to become the next US president.

The US dollar took a hit as it became apparent the Republican candidate would win the election and declined sharply against its major rivals. The greenback fell as much as 3.5% against the yen, which is traditionally seen as a safe haven by investors, in what was the biggest intraday decline since the Brexit vote.

However, as calm gradually returned to global markets following Trump's acceptance speech, the dollar reversed some of its losses. As of 1.14pm GMT, the greenback was 0.11% lower against the euro, trading at 0.9074 euro cents, and tumbled 1.10% against the yen to ¥104.03 but gained against the Swiss franc, rising 0.13% to CHF 0.9792.

The US currency surged 1% and 0.75% against its Canadian and Australian counterparts, exchanging hands at CAD$1.3425 and AUD$1.3008.

"The first speech by President-elect Trump has had a calming effect on the markets," said Kathleen Brooks, research director at City Index.

"This suggests that a win for President Trump is not yet America's Brexit moment."

Meanwhile, the Mexican peso, which tumbled to a record low 20.7818 per dollar and was the worst performer worldwide earlier this morning, halted the losses but remained 8% lower at 19.7990 per dollar.

"Trunmp's anti-Mexico rhetoric continues to pressure both the peso and Mexican economy," said FXTM chief market strategist Lukman Otunuga.

"Emerging markets may be in store for a nasty surprise moving forward as risk-off encourages another brutal selloff."

One of the most immediate consequences of Donald Trump's victory is that the Federal Reserve will, in all likelihood, not rise interest rates next month. Economists expected the US central bank to hike interest rates in December, but the turmoil rattling the markets is likely to put that option off the table.

"The Federal Reserve is certain to tread extremely warily if market turbulence persists," said Tom Stevenson, investment director for personal investing at Fidelity International.

"While investors will inevitably find it hard to keep their eyes on their long-term financial goals as markets react it is essential for them to do so."

However, should the Fed hold fire in December, the dollar could weaken even further, warned Naeem Aslam, chief market analyst at Think Markets UK.

"If the Fed cannot increase the rate, it could result in the dollar's recent rally losing steam and causing it to roll back down that mountain which it has been fighting to climb up over the past few quarters," he said.

"It might be time to batten down the hatches as storm Trump hits the financial world."

Meanwhile, in the UK, the pound climbed against both of its major rivals, gaining 0.33% against the dollar and 0.14% against the euro, to trade at $1.2412 and €1.1233 respectively. Data released earlier in the day by the Office for National Statistics showed Britain's trade deficit with the rest of the world shrank in the first three months after the country's European Union referendum