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22/10/24
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Investors Brace for Dollar Impact as U.S. Election Approaches
The upcoming U.S. Presidential election on November 5 is becoming a focal point for investors as they assess its effects on the U.S. Dollar (USD). The election will not only determine the President but also 468 Congressional seats, with 33 Senate positions and all 435 House seats up for grabs. A strong performance by the USD has been noted at the start of the final quarter of 2024, driven by anticipation surrounding the election results.
The outcome of the elections could lead to various scenarios impacting the USD significantly. A continuation of the current policies from the Biden administration may follow a Democratic victory, potentially resulting in cautious fiscal and trade strategies. Such a “Blue Sweep,” with Democrats gaining control of both legislative chambers, could undermine economic growth prospects and subsequently weaken the USD. This outcome may also lead to a stronger performance in Asian currencies, as traders react to a less favorable economic environment for the U.S.
Conversely, a Republican win led by former President Donald Trump would likely shift U.S. trade policy dramatically. His proposed increase in tariffs on Chinese imports could escalade trade tensions, impacting the Chinese economy and influencing global currency values. In this scenario, the USD could benefit from its status as a safe-haven currency, especially if trade conditions worsen globally. A Republican sweep, with control over both Congress and the Presidency, may foster a more robust economy through fiscal spending and tax cuts, positively influencing the USD.
The most probable outcome remains a divided government, which may limit drastic policy changes and cause a temporary pause in the USD’s momentum. While this situation could lead to a period of political gridlock, it may also temper market responses in the immediate aftermath of the elections. Overall, the USD’s reaction is expected to be short-lived, with greater attention soon shifting back to economic fundamentals and monetary policy as the volatility surrounding the election subsides.
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