If President Trump wins after the US presidential election and the Republicans take control of Congress, it could be bullish for the dollar. An all-out victory for Blue would likely hurt the dollar, but the most likely scenario of a split government could dampen any major moves. Tariff policy is key, but other factors not directly related to the White House are also important, such as Fed actions and geopolitics.
The U.S. dollar (USD) has regained the momentum it lost against its six major rivals early in the final quarter of 2024, amid rising tensions ahead of the much-awaited US presidential election scheduled for November 5.
Along with the presidential election, 468 seats in the U.S. Congress (33 of the 100 Senate seats and 435 seats in the House of Representatives) are also scheduled to vote on the same day.
What impact could the US election results have on the US dollar?
After a dramatic election campaign, investors are looking forward to assessing the impact of the election results on the US dollar. The elected government will decide on trade and fiscal policy, which will have a significant impact on the U.S. economy and the outlook for inflation, and ultimately the value of the U.S. dollar.
However, the impact of these policies is likely to be widespread in the medium to long term. Meanwhile, Greenback’s performance also depends on factors that aren’t necessarily directly related to who remains in the White House, from monetary policy to global geopolitical conditions.
The results of the electoral vote could result in a victory for either the ruling Democratic Party or the Republican Party (a red sweep), or a “divided government”, which is predicted as the most likely outcome. There is.
Currently, the House of Representatives is under Republican control, but the Senate is dominated by Democrats, creating a divided government. Full control of both houses of Congress is a win-win situation for both parties, as it makes it easier to implement policies.
The two candidates vying for the U.S. presidential election, Republican nominee Donald Trump and Democratic nominee Vice President Kamala Harris, have contrasting views on several policy issues, raising potential policy uncertainty. This is making USD traders nervous about the nature and continuity of the trade.
That being said, let’s analyze three possible outcomes and how each could impact the USD’s performance in the coming months.
Democratic Party Victory
In a scenario in which Democratic candidate Kamala Harris wins the presidential election, the policies of President Joe Biden’s administration are likely to continue. Harris is conservative on fiscal expansion and is expected to maintain current trade policy, which could hinder improved prospects for U.S. economic growth. This could cause the US dollar to go negative.
A blue sweep, in which Democrats secure majorities in both houses of Congress, could be seen as the most discouraging outcome for the U.S. economy and, by extension, the greenback.
Analysts at Deutsche Bank said in a research note: “Asian currencies are most likely to gain in a Harris victory without Congress, but the most widespread dollar losses are likely to be a blue sweep. “It’s expensive.”
Republican victory
Former US President Donald Trump has been vocal about his plan to raise tariffs on Chinese imports to more than 60% if he is re-elected. If Trump wins, it could reignite the U.S.-China trade war and threaten China’s already deteriorating economy.
Such a move could amplify China’s trade reaction globally, prompting major countries to devalue their currencies to limit the impact of trade barriers. In this scenario, the US dollar will appreciate. Note that China is the world’s largest trading nation.
If trade wars escalate around the world, investors could seek refuge in the US dollar, the world’s reserve and safe-haven currency.
The most bullish scenario would unfold if Republicans win Congress and win a red sweep. President Trump has always supported increased spending and tax cuts, which could favor pro-US economic growth and, in turn, the US dollar. Moreover, expansionary fiscal policy can increase spending and cause high inflation, implying a higher interest rate environment and a stronger US dollar.
DB analysts say the pair’s volatility is likely to be larger in a red sweep scenario than in a blue sweep. “Market reactions are likely to vary widely across currency pairs, with the US dollar expected to appreciate significantly across all pairs. We see the dollar as strong, but a Trump win without Congress could lead to currency carry. Trade is likely to suffer the most,” they added.
divided government
As mentioned above, the most likely outcome is a divided government, with the opposition controlling one or both houses of parliament. Such an outcome is expected to have a limited impact on the ongoing USD recovery in the near term in the face of a potential policy impasse. Economists at Morgan Stanley pointed out that “there is no significant difference in public spending regardless of which party controls the executive branch.”
In conclusion
The US dollar’s reaction to election results may be short-lived in the short term, as it is difficult for markets to price in the effects of policies implemented by winners in the medium to long term. And once election volatility subsides, investors will quickly shift their focus back to monetary policy and the economic outlook.
This month’s USD PRICE
The table below shows the percentage change of the US dollar (USD) against major currencies this month. The US dollar was the strongest against the Japanese yen.
US Dollar Euro Pound Yen Canadian Dollar Australian Dollar New Zealand Dollar Swiss Franc US Dollar 2.96% 3.15% 5.02% 2.29% 3.48% 4.95% 2.42% Euro -2.96% 0.18% 2.01% -0.65% 0.51% 1.93% -0.54% Pound -3.15% – 0.18% % -0.83% 0.30% 1.75% -0.71% Japanese Yen -5.02% -2.01% -1.84% -2.60% -1.47% -0.08% -2.48% Canadian Dollar -2.29% 0.65% 0.83% 2.60% 1.17% 2.60 % 0.12% Australian Dollar – 3.48% -0.51% -0.30% 1.47% -1.17% 1.41% -1.05% New Zealand Dollar -4.95% -1.93% -1.75% 0.08% -2.60% -1.41% -2.41% Swiss Franc -2.42 % 0.54% 0.71% 2.48% – 0.12% 1.05% 2.41%
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select USD from the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box represents USD (base)/JPY (estimate).
