Trump Strikes Back: Forex Markets Brace for Impact as Dollar Soars and Selic Rises!

The Forex Rollercoaster: Trump Strikes Back, EUR/USD Takes a Dive, and the Selic Gets Super-Sized!

Let me paint you a picture, folks: it’s 2020 all over again—but with extra seasoning. This time, the dollar (DXY) just couldn’t help itself; it pulled off its biggest daily rally since the last big Trump parade. Why, you ask? Well, turns out The Donald is back in action, and apparently, his economic polices are like that hot sauce some of us love to hate—tariffs, tax cuts, less regulation, and lots of government spending. This particular sauce is bringing heat to the inflation kitchen, and the dollar sure liked it, briefly jumping above the 105.00 level. Meanwhile, the FOMC (Federal Open Market Committee, for those in the cheap seats) has everyone’s attention as we wonder if they’ll switch the spices up even more.

Euro’s Got a Headache: Blame It on Trump (Again) and Germany’s Soap Opera

Our old friend the euro, meanwhile, has been feeling like it spent the night in a spin cycle. The EUR/USD managed a tiny bit of breathing room, but the poor euro’s been under heavy selling pressure—it’s like it’s stuck in a one-way race to the bottom against the dollar. Why? Firstly, Trump’s making everyone nervous again with tariff threats, and concerns about defense and Ukraine have a lot of investors reaching for their favorite comfort food (or in this case, dollars). Oh, and let’s not forget the latest episode of Germany’s political drama: Chancellor Scholz just gave Finance Minister Lindner the boot. Apparently, they couldn’t agree on budget policies—guess someone’s “zero-based budgeting” didn’t go down well. Now there’s talk of a confidence vote coming up in January, which could mean fresh elections in March. Cue the popcorn, because it’s going to be one spicy soap opera!

GBP/USD: The Slow Bounce Back, Like an Inflatable Flamingo

If you’re wondering about the pound, well, GBP/USD has managed to cling to the 1.2900 level, but it’s having trouble getting any higher. It’s like an inflatable flamingo stuck in a swimming pool: it’s floating, but it’s not exactly soaring. The market is on edge waiting for the BoE’s (Bank of England, for the uninitiated) rate decision—everyone’s expecting a 25 basis point cut. As always, no one wants to bet big until they know which way the wind’s blowing.

The Ninja Move from USD/JPY

The yen, oh boy… USD/JPY hung on to most of the prior day’s gains, riding the coattails of that dollar surge and a spike in U.S. yields. Market expectations are heavy on Trump’s inflationary policies coming back for Round Two, and that’s got everyone piling into the greenback again. Support has been pretty sturdy around the 154.00 level. Some might say that’s just a number, but anyone who’s ever watched USD/JPY knows it has a mind of its own—and sometimes it’s a ninja.

Down Under Duo Does a Comeback

Meanwhile, the antipodeans—AUD and NZD, for those not familiar with my favorite down-under duo—have been clawing back those post-election losses. Apparently, Australia and New Zealand are tougher than they look. Traders were also keeping a close eye on China; some quick moves from China’s state-owned banks saw them selling US dollars and buying yuan. You could say Beijing’s not too thrilled about their currency going full “gravity’s rainbow.”

The PBoC (People’s Bank of China, of course) set the USD/CNY mid-point at 7.1659—that’s a hair lower than the expected 7.1679, so at least there’s some sign they’re not letting things slip too far. But with Trump back in the picture, you can expect more fire-breathing dragon moments on the horizon.

Brazilian Buzz: Super-Size the Selic

And in case you thought it was only the northern hemisphere making headlines, think again! Brazil has thrown us a curveball by hiking the Selic rate by 50 basis points, up to 11.25%, with a unanimous vote. Yup, Brazil’s Central Bank has taken a stance—inflation? Nah, not on their watch! The BCB emphasized their full-on commitment to hitting that inflation target, come what may. They did say that future rate adjustments will depend on inflation dynamics, output gap, and risk balance. But honestly, the market heard, “We’ll do what it takes, so don’t test us.”

How to Read Between the Lines of Trump’s Policies (And Not Get Sucker-Punched)

Now, here’s where the magic happens, folks—how do we, as traders, stay ahead of the curve when it feels like we’re all stuck in a perpetual game of whack-a-mole? The first lesson: follow Trump’s policies carefully. He likes tariffs. Tariffs like inflation. And the dollar? Well, the dollar loves inflationary themes—for a while, at least. Until, of course, the Fed decides to turn the music off. So, think ahead. If tariffs are coming, what’s your move? Go long on dollar strength—but keep an exit plan ready for when sentiment inevitably shifts.

Euro in the Mud, But Is There A Silver Lining?

Let’s be real: the euro isn’t having its finest moment. But there’s opportunity in every corner if you’re willing to dig deep enough. The weakness in EUR/USD could offer some unique entry points, particularly if Germany’s leadership manages to do something that resembles stability (I know—a tall order these days). One strategy here? Look for opportunities to go long on euro crosses where other currencies have weaker fundamentals. Or, you know, keep some popcorn ready—things might get wild.

Unicorns, Inflation, and the Brazilian Gamble

The Brazilian Selic rate hike is one of those moments where you know there’s a bigger game afoot. Inflation is a unicorn that central banks keep trying to catch. And for Brazil, that unicorn just got a little closer—they’re ready to corral it before it bolts. But there’s a tactic here: if the Selic keeps climbing, it’ll attract capital inflows as investors chase those sweet yields. The play? Look at the USD/BRL pair. As more foreign capital comes pouring in, the Brazilian real may see some strength—but the question is, for how long? It’s the classic “yield chase,” and the smart money knows when to get out before the next change in global risk appetite.

End Game: Ready to Play with the Big Boys?

The bottom line is simple, folks: the Forex market just got its latest adrenaline shot. The DXY’s got its groove back, EUR’s sweating over German politics, GBP is all about waiting for the BoE, and the yen is, well, hanging in there, ready for action. The names in the game may stay the same, but the rules? Those change every time a headline hits.

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Image Credits: Cover image at the top is AI-generated