US Election Could Have Major Impact on Forex Markets and US Dollar Strength
On Wednesday, October 9, 2024, the highly anticipated US election is set to take place, with many experts predicting its potential impact on the Forex markets and the strength of the US dollar. To provide valuable insights to traders, leading broker Alpari has compiled a comprehensive guide outlining the potential effects of a Harris or Trump victory on the markets. The guide delves into the historical impact of past elections on the dollar, as well as the potential implications of each candidate’s policies and their leadership on the economy.
Alexey Efimov, Market Analyst at Alpari, states, “The US election is a significant event for the US economy and, consequently, the US dollar. With a close race between the candidates in several states, the outcome of the election could also affect other markets, including commodities and cryptocurrencies.”
The US Dollar Under Biden
Academic research suggests that the US dollar tends to strengthen under a Democratic president compared to a Republican one. Under President Biden, the dollar has seen a surge in strength due to the government’s fiscal stimulus package, specifically the American Rescue Plan Act of 2021. The stimulus has caused an increase in US inflation, leading the Federal Reserve to raise interest rates to a 23-year high. This has resulted in a rise in demand for the US dollar, with the currency increasing by 28.7% between 2021 and 2022.
President Biden’s leadership has also seen the US dollar post its highest annual gains since 2015, with an 8.2% increase in 2022 and a 6.4% increase in 2021 – the year when another Democratic President, Barack Obama, was in office.
The US Dollar Under Trump
During his campaign, Donald Trump had expressed his desire to weaken the US dollar, believing the strong dollar environment to be a burden on US companies exporting products. In 2019, Trump labeled China as a “currency manipulator” and imposed import tariffs on the country, indicating his willingness to introduce further tariffs if re-elected. He has also pledged a 10% blanket import tax on goods from Europe, which could potentially increase the value of the US dollar against the Euro. From 2018 to 2020, the Euro and US dollar pairing (EURUSD) dropped by 15.3% following trade wars initiated by Trump.
The US Dollar Post-Election
After the attempted assassination of Trump in July, the US dollar initially saw a rise in value due to a “flight-to-safety” move. However, the currency has since lost these gains and has not significantly impacted Trump’s poll numbers, even after Kamala Harris was announced as the new Democratic presidential candidate.
Should Harris win the election, she is expected to make similar policy decisions as Biden, with a focus on investing in infrastructure and welfare. Despite this, the US dollar has seen a decline in Q3 2024, erasing all gains made earlier in the year. This is due to the market’s anticipation of the Federal Reserve’s potential interest rate cuts, which ultimately occurred on September 18, 2024 – the first rate cut in four years.
However, the upcoming election could lead to a stronger US dollar, with investors turning to the “safe haven” asset during times of uncertainty. This could also result in increased volatility in the FX markets. Alpari advises traders to diversify their currency portfolios to minimize the risk of losses.
Disclaimer: Trading is risky.
About Alpari
With a 25-year history, Alpari is a pioneering leader in online financial trading. They were the first to introduce online Forex trading for retail clients and focus on providing individuals with access to global financial markets.
Alpari’s clients are self-directed traders with a willingness to take risks and generate financial returns. They are committed to investing time to develop the necessary skills to succeed in trading.
Alpari’s promise to its clients is to provide secure access to global trading opportunities. They believe that individuals worldwide should have access to financial markets, even in countries where local political environments do not support domestic regulation. Alpari provides offshore solutions with the same service standards and client protections as a regulated business.
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