A Trump win would significantly weaken the Czech crown, analysts say

With the U.S. presidential election just six days away, economists in Czechia are noting the Czech crown’s sharp depreciation against the U.S. dollar—going so far as to advise people in Czechia to exchange some of their crowns for dollars or euros ahead of the winter holidays.

Analysts claim a potential Donald Trump victory could weaken the domestic currency. Analyst at financial firm Roklen Jan Berka tells Czech media outlet Novinky.cz that a Trump win could lead to an exchange rate of USD 1: CZK 24. The crown currently stands at around CZK 23.34 for USD 1.

As a Trump victory would shake global financial markets as well as Czech trade, the crown would also perform worse against the euro. Berka believes that a second Trump term could soon see the exchange rate turn to EUR 1: CZK 26 (currently at CZK 25.33). On the other hand, a win for Vice President Kamala Harris would strengthen the crown due to the U.S. dollar being likely weakened.

"We saw the current trend with the strengthening dollar and the rising yields of US government bonds, especially those with the longest maturities," Berkia said. "If this sentiment-based betting on Trump in the market is maintained, it will cause the possible weakening of ‘risky’ currencies—including the Czech crown."

While some economists, such as chief economist of Creditas Bank Petr Dufek, are not expecting a dramatic weakening of the crown, they still recommend buying some vacation dollars (or even euros) as a precaution. "Rhetoric before the elections is one thing, practical steps after the elections are another," Dufek said. "Markets may be euphoric [volatile] in the short term but will sober up over time."

On the other hand, UniCredit Bank chief economist Pavel Sobíšek believes that the crown may strengthen slightly immediately after the election, regardless of the result, as market nervousness subsides. Some commentators also believe a Trump win would be good for financial markets—especially investors. 

“He is difficult to predict, but some of the steps he approved during his mandate were beneficial for the stock markets and we can expect him to continue doing so," said Tomáš Pfeiler, portfolio manager of Cyrrus, last week.

Ultimately, the current consensus is that Trump’s return to power could introduce volatility in global markets due to his unconventional approach to foreign policy and economic management. Increased uncertainty might lead to a flight to safety, strengthening the dollar while weakening other currencies, including the crown.