News in Charts: Financial markets during President Trump’s first month in office

Over a month has passed since Donald Trump was inaugurated in Washington DC. In that time, he has moved swiftly to start implementing several of his promised policies, including preparations to impose broad tariffs, reductions in the federal workforce and the initiation of peace talks regarding the war in Ukraine. While the long-term effects of these actions remain uncertain, key trends in financial markets have already begun to reveal how investors are reacting to his policy decisions.

The US dollar surged following Trump’s election victory on 5 November last year, reaching its peak in early January. However, since his inauguration on 20 January the dollar has reversed course, with the dollar index declining 3% from its peak as of last week’s market close. This contrasts sharply with the dollar’s performance during the early months of his previous administration.

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Several factors have contributed to this unexpected weakening. First, much of the dollar’s strength had already been priced in before Trump took office, prompting profit-taking and a subsequent pullback. Additionally, his decision to delay tariffs on Mexico, Canada and other key trading partners eased immediate trade tensions. While he announced 25% tariffs on steel and aluminium — potentially extending to automakers, semiconductor manufacturers and pharmaceutical companies — these measures are not set to take effect until April. So far, the only implemented tariff has been a 10% levy on China, which triggered swift retaliatory measures.

As a result, concerns over an imminent inflation surge have eased, contributing to the dollar’s downturn. At the same time, since the inauguration day, US government bond yields have also declined for similar reasons. Another crucial factor is the Federal Reserve’s indication that it may slow the reduction of its balance sheet due to debt-ceiling constraints. This suggests that the central bank will likely maintain elevated holdings of government debt, keeping borrowing costs under downwards pressure and further weakening the dollar.

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Global equity markets have been on an upward trajectory since Trump’s inauguration, with European equities — somewhat unexpectedly — leading the charge. A key driver of this rally has been the delayed implementation of sweeping tariffs, which has bolstered investor confidence and fuelled risk-on sentiment. However, broader market fundamentals, including expectations of lower global interest rates, the ongoing enthusiasm surrounding AI and strong corporate earnings, have also played a crucial role.

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Meanwhile, Trump’s diplomatic efforts to engage Russia in peace talks has provided a strong tailwind for European defence stocks. It is becoming increasingly evident, as the winner of the German election acknowledged shortly after the polls closed, that Europe must take greater responsibility for its defence capabilities — necessitating substantial investment from European taxpayers. This realisation has driven a broad-based rally in European markets, with all sectors posting substantial gains by the end of January. Investors also anticipate that the European Central Bank will continue easing monetary policy, potentially lowering interest rates further and introducing special funds to support defence spending.

Trump’s policies have also indirectly and probably unintentionally benefited other key European sectors such as financials, technology and industrials, driving broad-based gains from three months ago when the US presidency was still unclaimed. His commitment to investing $500 billion in American AI infrastructure, plans to rollback banking regulations and a push for increased EU defence spending have all contributed to the strong performance of these sectors. Notably, corresponding sectors in the UK have also benefited, albeit to a lesser extent, as the country remains somewhat insulated from Trump’s policy decisions thus far.

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Gold has been a standout performer over the past month, surging approximately 6% since Trump’s inauguration. The metal’s safe-haven appeal has strengthened amid rising concerns over a potential global trade war and slowing economic growth. A weaker US dollar has further fuelled gold’s upward momentum, making it more attractive to investors. Additionally, the Trump administration’s decision to cut thousands of federal jobs — with assistance from businessman-turned-policymaker Elon Musk —has raised concerns about rising unemployment and weaker consumer spending, adding another layer of uncertainty that has bolstered demand for gold.

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Since Trump’s inauguration, Bitcoin has declined by 26%, while the Coinbase cryptoexchange Index has lost approximately 35% — moves that took many investors by surprise given the pre-election rhetoric. Enthusiasm surrounding Trump’s promise to make America “a crypto capital” has waned, likely due to a lack of concrete policy initiatives. So far, Trump has merely stated that his administration will assess the feasibility of establishing a “…national digital asset stockpile.” However, his reluctance to specify a Bitcoin reserve may have disappointed crypto investors, contributing to the sector’s recent decline.

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Fathom’s recent Global Outlook, Spring 2025 explores the potential outcomes of policy choices by the incoming US administration and provides an in-depth analysis of investment opportunities in emerging European markets.

The views expressed in this article are the views of the author, not necessarily those of LSEG.

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