USD Volatility Expected as Trump Unfolds Policy
The US dollar has been firm, awaiting policy announcements from the new Trump administration, with investors closely watching the potential impact on the US economy and equities, particularly with the S&P 500 achieving a record level of concentration and the top 10 stocks, largely tech companies, driving most of the gains, with the index's valuation at 21.5 exceeding its five-year and 10-year averages, valued in billions of USD.
The market's heavy lean towards large technology companies, which are asset-light growth companies, has contributed to the high valuation, according to some Wall Street strategists. However, the uncertainty surrounding President Trump's economic plans, including potential trade tariffs, has led to a delay in signaling potential impacts on Canada, Mexico, and China. The Federal Reserve's May meeting is also anticipated to be pivotal for policy shifts, with the CME FedWatch Tool indicating a high likelihood of a hold on interest rates in May, which could affect the USD value.
The US Dollar Index (DXY) plummeted towards 108.30 on the day of Donald Trump's inauguration, attributed to uncertainty surrounding the new administration's economic plans. The Australian dollar has scraped off five-year lows and may test resistance at $0.6322 if Trump's policy changes fall short of market expectations. Gold and Brent crude futures have also been affected, with gold hovering at $2,694 an ounce and Brent crude futures ticking higher to $81.21 a barrel, as investors await further details on Trump's economic agenda.
As the US stock market continues to break records, with the S&P 500 rising over 20% for two consecutive years, investors are uncertain about the impact of a potential change in Federal Reserve policy and President-elect Trump's proposed policies on the US economy and equities. The 20-day Simple Moving Average (SMA) was broken, indicating increased vulnerability for the US Dollar, and a failure to regain buying interest could lead to a more pronounced setback for the DXY.
