How a Trump presidency could impact FX markets

Donald Trump will return to the White House in January 2025, placing American conservatism front and centre of the world’s largest economy. Most expected a Trump win to be bullish for U.S.markets, a belief proven correct as the dollar jumped by between 1 to 2% against a basket of currencies, including the pound, euro, and Japanese yen.

The incoming U.S. president campaigned heavily around the economy, promising to impose heavy tariffs on imported goods, end inflation, and cut taxes. Whether these promises come to fruition remains to be seen, but America is now certainly on a new path after four years of Democratic governance.  

What could a second Trump term mean for the FX markets across the short, medium, and long term?  And how might this affect companies with US Dexposure? Let’s take a look.

Short-term: 6-12 months

The markets were quick to react to aTrump presidency, bringing heightened volatility as investors anticipated the policy shifts to come. The jump in USD seen immediately after Trump’s win could be sustained as investors see the dollar as a safe-haven currency, a situation compounded by international uncertainty. Currencies in emerging markets may experience selloffs as the markets prepare for policy changes.

We saw the Chinese Yuan fall sharply following the election result, and many investors will have a close eye on the currency pair as the Republican administration begins to roll out its promises from January 2025.

Medium-term: 1-2 Years

As Trump moves through the first years of his four-year term and the administration delivers on its election claims, we should start to seethe results of economic policies focused on stimulating growth. Many expect inflation to rise because of Trump’s proposed trade tariffs, potentially leading the Federal Reserve to increase interest rates.

Higher interest rates are likely to strengthen the U.S. dollar against other currencies, but the knock-on effect of this may not be favourable for U.S.companies. A strong dollar could limit the competitiveness of American exports, leading to measures to cool the dollar’s strength.

Long-term: 3+ years

Towards the tail end of Trump’s term, there’s much uncertainty. Should the administration’s economic policies succeed, growth for domestic manufacturing could sustain a strong USD. However, this scenario could cause nations to diversify away from USD reserves, which could impact the dollar’s strength.

What’s more, increasing government spending and debt — which looks certain based on historic data — could create a lack of confidence in the U.S.’ financial standing, weakening the dollar against other currencies.

What does this mean for companies with USD-based income?

Business owners with USD-based income and foreign owners of U.S.-based companies will be wise to start making plans for the incoming Trump administration.

Many expect Trump’s “America First” stance to increase the tax and friction on foreign owners of U.S.- based companies. Businesses that have set up a U.S. entity but are owned by anon-U.S. ultimate beneficial owner (UBO) could face a significant tax liability if not structured correctly. Generally, the majority of income from a direct investment into the U.S. qualifies for federal income tax and must be reported on a U.S. tax return. Meanwhile, adding to the complexity, each state has its own state-level corporate income tax or franchise tax requirements that business owners need to be aware of.

Thankfully, there are numerous strategies business owners can employ to reduce their tax liability and reporting requirements. This includes restructuring around a foreign holding company, electing for the company to be disregard entity if there’s only oneUBO, and putting in place a special purpose vehicle, also known as a tax blocker, to reduce the tax burden and tax reporting.

To sum up 

The U.S. dollar has already made notable movements since Trump secured the presidency on November 6, 2024, with further volatility likely ahead. Thankfully, business owners with USD exposure do have time to prepare for the transition of power and protect their bottomline.

Reckon is here to help. Contact us today to discuss FX planning and setting up a special purpose vehicle to prepare your business for what’s to come.