Dollar soars amid prospects of Trump’s return, Indian Rupee sinks to record low

With speculations of former President Donald Trump returning to the White House gaining momentum, the US dollar strengthened on Wednesday, pushing the Indian rupee to an unprecedented low of 84.25 against the dollar. This trend reflects market anticipation of increased government expenditure under a Trump-led administration, a move that could significantly expand the US fiscal deficit.

Analysts suggest that Trump's policy focus on domestic infrastructure could place considerable pressure on fiscal resources, likely increasing borrowing needs. This expectation has already boosted the dollar, reaching levels not seen since July. The Indian rupee, affected by the greenback's surge, slipped to a historic low of 84.25 before recovering slightly to 84.18 at the time of this report.

Market experts attribute the dollar’s rally to investor confidence in a Trump administration’s potential for ramped-up government spending, especially in sectors tied to domestic growth. They warn that these policies could widen the fiscal deficit, resulting in greater reliance on government borrowing. Increased issuance of US Treasury bonds would likely raise Treasury yields, as investors seek higher returns to accommodate the added debt burden. These higher yields have heightened the dollar’s attractiveness, intensifying demand for dollar-denominated assets.

This surge in the dollar is already impacting other global currencies. The Mexican Peso, for example, has depreciated by 3 percent, while the Japanese Yen and Euro have also weakened. For emerging markets like India, the rising Treasury yields add downward pressure on their currencies, given the strengthening dollar’s appeal.

Experts indicate that if the trend continues, emerging markets could face a challenging landscape as the dollar's strength places additional strain on global currencies and shifts investor sentiment toward safer, dollar-backed assets.

Also read: Assam: 5 ACS officers suspended for alleged non-compliance with election duties