US Elections Could Have Major Impact on Forex Markets and the Strength of the Dollar
As the US election draws near, experts are predicting potential effects on the Forex markets and the strength of the US dollar. In light of this, Alpari, a renowned broker in the financial industry, has released a guide detailing the impact of past elections on the dollar and forecasting the potential outcomes of a Harris or Trump victory.
According to Alexey Efimov, Market Analyst at Alpari, the US election is a crucial time for the economy and the US dollar. With a tight race between the candidates in many states, it is difficult to predict who will emerge victorious. However, it is essential to consider that the election could also have implications for other markets, including commodities and cryptocurrency.
The US Dollar under Biden
Research has shown that the US dollar historically strengthens under a Democratic president compared to a Republican one. This trend has continued under President Biden, with the government’s fiscal stimulus package, particularly the American Rescue Plan Act of 2021, boosting the dollar’s strength. The resulting increase in inflation led to the Federal Reserve raising interest rates to a 23-year high, causing a surge in demand for the dollar. Between 2021 and 2022, the dollar rose by 28.7%, its largest annual gains since 2015, when another Democratic president, Barack Obama, was in office.
The US Dollar under Trump
On the other hand, Donald Trump has expressed a desire to weaken the dollar if elected, as he believes its strength puts a strain on US companies attempting to export products. During his presidency, Trump labeled China a ‘currency manipulator’ and imposed controversial import tariffs on the country. He also pledged a 10% blanket import tax on goods from Europe, which could lead to an increase in the dollar’s value against the Euro. As a result of these trade wars, the Euro and US dollar pairing (EURUSD) dropped by as much as 15.3% between 2018 and 2020.
The US Dollar Post-Election
After an attempted assassination of Trump in July, the dollar initially strengthened as investors sought out the ‘safe haven’ asset. However, it has since lost its gains and did not have the significant impact on the polls many had expected. With Kamala Harris now the new Democratic presidential candidate, polls have become even closer.
If Harris wins, she is expected to make similar policy decisions to her predecessor, investing in infrastructure and welfare. However, in the third quarter of 2024, the US dollar has already wiped out all of its year-to-date gains, as the Federal Reserve hinted at possible interest rate cuts. The Fed eventually followed through with a 50 basis point cut on September 18th, 2024, its first rate cut in four years.
Despite this, the upcoming elections could lead to a stronger dollar as investors turn to ‘safe haven’ assets during times of uncertainty. This could also result in higher volatility in the FX markets. Alpari advises traders to diversify their currency portfolios to minimize the risk of potential losses.
About Alpari
Alpari has been a leader in online financial trading for over 25 years, providing individuals with access to global financial markets. Their clients are risk-takers who are willing to invest time to develop the skills needed to succeed in trading. Alpari promises to enable these clients to access global trading opportunities securely, even in countries where domestic regulations do not support it. They offer offshore solutions with the same service standards and client protections as a regulated business.
Disclaimer: Trading is risky.
Derick is an experienced reporter having held multiple senior roles for large publishers across Europe. Specialist subjects include small business and financial emerging markets.