How will the US dollar react to the US Election?

Next Tuesday is the US election with results expected the next day. Although if it is a very tight race or counts are disputed as could be looking likely there may be delays. In 2000 the result took another 36 days to settle as inaccuracies hung over Florida, a key battleground then and today. Most polls have both candidates neck and neck, this really could be a very close call! The results of the election will I believe be viewed by markets as to their likely impact on whether or not the US Federal Reserve will raise interest rates.

The raising of interest rates in the United States has been the principal driver on the currency this year.

A Clinton Presidency is generally seen as the safer option with a ‘business as usual’ approach’. I predict the US dollar would strengthen more readily as it reaffirms the much greater chance of a rate hike in December. Whilst Trump has some pro-business policies which are being welcomed by some quarters of the US economy he is generally seen as a slightly more risky candidate. This means that whilst the US dollar may still strengthen on a Trump win, it might not be as pronounced as under Clinton. Markets will need to factor in the uncertainty and this could potentially see a weaker US dollar.

Unfortunately for anyone hoping for a straightforward reaction on exchange rates there could be surprises. Since the US dollar is a ‘safe haven’ currency it can strengthen in times of global uncertainty. These attitudes to risk mean that if Trump gets in and markets get spooked the US dollar could strengthen greatly as investors run for cover of volatility elsewhere. This behaviour also works in reverse so on a Clinton victory the US dollar might weaken because the uncertainty of a Trump victory has been removed.

If you are confused you are right to be so! The US dollar displays different kind of behaviour according to how investors are ‘using’ the currency. Despite the potential for these surprises I feel the most likely reaction is US dollar strength so if you need to buy US dollars this current 6 week high could be well worth locking in.

Important News before the Election

This afternoon we have the latest Non-Farm Payroll report, Unemployment data and the important to note Baker Hughes Oil Rig count. If you have a short term requirement on the Pound to US dollar rate these releases could all have an important bearing on the market. The Federal Reserve has linked the strength of Unemployment statistics to their interest rate raising plans. Any surprise poor figures could push back the expectations for a December hike presenting even better rates for US dollar buyers. The expectation however is for consistent growth which may just take the edge off the 6-week high.

Overall this a very decisive time for America and for the US dollar so be sure to be in touch with your broker who can help make sense of these uncertain times.

With Trump still a major player in this years election, clients may benefit from one of the different contract options offered here at currencies.co.uk. If youd like to know how these options work, email me at jmw@currencies.co.uk and Ill be happy to assist you.

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