Flying dollar and falling pound: what Donald Trump's win means for the City and London's economy

Ebullient financial markets were in a Georgia state of mind through the dark early morning hours as they reacted to the results from the seismic US Presidential and Congressional elections hitting their trading screens.

The moment that the Deep South state was projected for Trump at around 5.30am London time set dealing rooms all over the world alight. Until that crucial moment investors had remained cautious, expecting a close and possibly undecided race between the two candidates, with the dollar little moved against other currencies.

North Carolina may have been the first so called swing state to be claimed by the Republican camp, but it was the confirmation from its neighbouring battleground that it too was going red that really lit the fuse.

From that moment investors were convinced that Donald Trump would be returned to the White House as the 47th President with all the profound implications that entails for the world’s economy and financial markets.

Investors expect a massive Federal spending boom, lower taxes, harsh tariff barriers and more relaxed regulation of cryptocurrencies and other markets when the Trump team get their hands on the levers of power after the inauguration in January.

They anticipate that the “America First” policies will turbocharge US economic growth, giving the dollar an immense sugar rush that sent the greenback soaring against major currencies all over the world — not least sterling.

Within minutes of the Georgia result coming through the greenback was racing higher on the so called Trump trade.

By 9am the dollar index, which measures the world’s reserve currency against six major peers, including the British pound, was up 1.4%. The rate for “cable” traders’ nickname for the heavily traded dollar pound pair, careered more than a cent from just over $1.30 to below £1.29 as investors piled into the all conquering dollar.

The Euro fell even more sharply by as much as 1.9% to $1.0702, its lowest since June 28. The Eurozone economy is seen as particularly vulnerable to a tariff war harming the $1.3 trillion trade in goods and services between the two blocs on either side of the Atlantic.

Mexico and China are also seen as potential losers from Trump tariffs, The dollar jumped over 3% to 20.8038 Mexican pesos and as much as 1.3% to 7.1928 Chinese yuan in offshore trading.

It was a similarly strong reaction from US stock markets where the Dow Jones Industrial Average jumped more than 3%, or 1,308 points, to an all-time peak of 43,520. The S&P 500 rose almost 2% to just under 5,900 and is predicted to break through the 6000 mark within days. The tech focussed Nasdaq was up 2.3%.

Individual shares doing well included, predictably, Elon Musk led car maker Tesla, after the 47th President heavily praised the mercurial billionaire in his victory speech. Shares were up 12%. Another unsurprising beneficiary was Trump Media & Technology Group, with shares almost 9% higher.

Lindsay James, investment strategist at City investment managers Quilter Investors said: “While over the long-term US elections have had a minimal impact on stock markets, investors will likely see a Trump presidency as a positive for the share prices of many of America’s companies.

“With proposals for business tax cuts paired with steep tariffs on imports, US corporate profitability is projected to improve, although tariffs will elicit an international response and far-reaching consequences.”

There was an initial boost in London too with the UK’s leading blue chip index the FTSE-100 adding more than 100 points to push through the 8,300 level in early trading. Companies with big exposure to the US economy were in particularly strong demand with equipment hire group Ashtead surging more than 6% on the back of its huge US operation, Sunbelt Rentals.

However, fears that a trade war could dent UK economic growth sent the stock market into reverse and the blue chip index actually ended slightly down.

The prospect of higher inflation due to combined effect of lower taxes and higher Federal spending, particularly on defence, unsettled the inflation-phobic bond markets. Yields on US Government Treasury bonds — the world’s most widely held traded investment — rose sharply.

By late morning the yield on the 10 year US Treasury bond was up 19 basis points — almost a fifth of a percentage point — at 4.477% in one of tis biggest daily moves of recent years.

Bitcoin on the other hand rushed to a new all-time high of $75,273 as the news from Georgia came through before settling back to around $74,200. Trump is seen as likely to order far lighter regulation of the cryptocurrency Wild West than Joe Biden.

On the energy market the oil price fell more than 1.5% after the return of the politician known for his “drill, baby, drill” mantra.

Susannah Streeter, head of money and markets, at City fund managers Hargreaves Lansdown, said: “Investors are bracing for tariffs and a clamp down on immigration, policies considered to be inflationary which are likely to mean interest rates may be more elevated in the years to come. Trump’s more renegade approach to trade is likely to push the US further away from global institutions and the rules-based order built up over many decades. But at the same time, expectations are high that a Trump presidency will mean fewer regulations on big tech and big finance.

One other market is expected to do well from the return of Donald Trump: central London property. Agents reported a busy morning with calls from Democrat-leaning US clients about buying, or more likely renting, a property in London to sit out the second tranche of Trump years.

Lindsay Cuthill, co-founder of Blue Book Agency said: “I vividly recall a conversation in 2016 with a client from California, who summed up her reasons for moving as “Trump, fires, and guns.” Now, with Trump the President-Elect, the influx of American buyers in London and the Cotswolds observed in the lead-up to the election is expected to grow even further.”

The epicentre of last night’s geopolitical earthquake may have been in Georgia but the tremors will be felt shaking London for years to come.

Jonathan Prynn is business editor of the London Standard