Trump Effect on Forex Market and Bitcoin

Earlier before the administration of Donald Trump took office on Friday, January 20, 2017, several analyst in the financial sector have predicted the rise of alternative investment to the US Dollar. These alternative investment has no doubt been found in Crypto-currency most notably bitcoin Crypto-Currency. To add to the global uncertainty in the financial market is the constantly changing position adopted by the POTUS on key issues, especially on immigration and trade relations with other countries. As I sit on my computer, reflecting on the events of these past few months, I cannot help but wonder if this phenomenon known as the “TRUMP EFFECT” that started out as a joke has come to be a permanent factor that needs to be given adequate consideration before any financial investment is made. The rise of Bitcoin shows no intention to stop in the nearest time. It is also interesting to note that most currency pairs are trading bullish against the Us Dollar in the Forex market. As the year unfolds let’s hope for some stabilizing force to neutralize this lingering phenomenon called the “TRUMP EFFECT”.

Chart showing the current price of bitcoin as against the US Dollar (Image Source: http://www.xe.com)

Bitcoin predicted to rise 165% to $2,000 in 2017

The price of Bitcoin could hit more than $2,000 in 2017 driven by expectations that U.S. President-elect Donald Trump may introduce economic stimulus policies, which could send inflation soaring and propel the dollar to record highs, a report from Saxo Bank claims.

Bitcoin is currently trading around $754.51, according to CoinDesk data. A handle of over $2,000 would represent 165 percent appreciation.

During his election campaign Trump has talked about an increase in fiscal spending. Saxo Bank's note said that this could increase the roughly $20 trillion of U.S. national debt and triple the current budget deficit from approximately $600 billion to $1.2-1.8 trillion, or some 6-10 percent of the country's current $18.6 trillion economy.

As a result, the economy will grow and inflation will "sky rocket", forcing the U.S. Federal Reserve to hike interest rates at a faster pace and causing the U.S. dollar "to hit the moon".

When inflation rises the Federal Reserve may raise interest rates to bring it under control. This causes the dollar to appreciate because it would be seen as an attractive currency for foreign investors.

"This creates a domino effect in emerging markets and China in particular, leading people globally to look for alternative forms of currencies and payment systems not tied to central banks that have exhausted monetary policies or crony governments that are in full financial repression mode nor transaction systems that are long overdue for a revolution," Steen Jakobsen, chief economist at Saxo Bank, wrote in a note.

Bitcoin as the largest cryptocurrency would benefit from this "chaos", he added, as emerging market countries look to move away from "being tied" to the monetary policy of the U.S. and banking system. 

Benoit Tessier | Reuters

"If the banking system as well as sovereigns such as Russia and China move to accept Bitcoin as a partial alternative to the USD and the traditional banking and payment system, then we could see Bitcoin easily triple over the next year going from the current $700 level to +$2,100

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