There have already been several major elections held around the world in 2024, including in the UK and France, but none are likely to have as far-reaching an impact at this year’s US Presidential election.
The stakes are high not only for domestic policies but also for the global economy. Given its status as the world's primary reserve currency, the election’s impact on the US dollar may be felt across the globe.
This has been a particularly eventful election cycle as well, with President Joe Biden’s historic decision to step aside for Kamala Harris having completely upended the race for the White House in November.
But how exactly will the expected contest between Harris and Donald Trump in 2024 influence the trajectory of the US dollar ahead of the election on 5 November?
How has the US dollar performed under President Biden?
Since taking office in January 2021, Biden pursued an expansionary fiscal policy, including significant infrastructure spending and stimulus measures.
This initially contributed to a weaker US dollar through 2021, before the sharp acceleration of inflation in 2022 propelled USD exchange rates to a 20-year high as the Federal Reserve was forced to start tightening its monetary policy.
The effectiveness of Biden’s Inflation reduction act (IRA) subsequently led to a moderation and stabilising of the US dollar through 2023, but ultimately USD exchange rates remain higher than when Biden first took office.
Who is likely to win?
Following Biden’s disastrous performance in a televised debate against Trump at the end of June the Democrats’ chances of keeping hold of the White House appeared to all but vanish.
Meanwhile, the assassination attempt on Trump appeared to galvanise Republican support in early July.
However, Biden’s exit and Harris’s ascension to the top of the Democratic ticket appear to have revitalised the party’s campaign, with Harris now leading against Trump in several key swing states .
However, given the blistering pace at which events have unfolded over the past couple of months and with over 11 weeks left before polls open on 5 November who knows what could happen?
How could the election impact the US dollar?
A general rule of thumb is that investors are not fans of political uncertainty. Therefore, the US presidential election and its aftermath is likely to bring about increased volatility in USD, particularly if the polling numbers remain close.
As for how victory for each candidate may impact the US dollar, it's difficult to say, however looking at how previous election results impacted USD exchange rates may offer us some insight.
Harris victory
The continuity and stability offered by Harris may be welcomed by USD investors, at least in the short-term.
Longer term the focus will be on Harris’s domestic priorities, particularly regarding her fiscal policy.
Plans for increased government spending, particularly on healthcare, education, and renewable energy initiatives could lead to higher deficits and increased borrowing, potentially putting downward pressure on the US dollar if not matched by sufficient economic growth.
On the other hand, such policies could also stoke inflationary pressures within the US. This could strengthen the US dollar if it pushes the Federal Reserve to maintain its restrictive monetary policy for longer.
Elsewhere, if the Democrats follows through with promises to raise taxes for corporations and the wealthy. Could a flight of capital trigger some weakness in the US dollar?
Trump victory
While markets might initially welcome a Trump victory due to expectations of pro-business policies, ongoing trade disputes and geopolitical tensions could infuse significant volatility into the US dollar. During his first term, Trump pursued a more protectionist trade policy, which led to trade tensions with several countries, most notably China.
These tensions and the associated tariffs had mixed effects on the US dollar, as they simultaneously increased uncertainty and boosted demand for safe-haven assets.
If Trump were to win a second term, it is expected that his administration would continue to prioritise protectionist policies , which may lead to further trade disputes and geopolitical tensions.
Such an environment could result in increased volatility for the US dollar, as investors react to changing trade dynamics and assess the potential impact on global economic growth.
Protect yourself against volatility
If you’re concerned about how currency volatility around the election could impact you, we can help. Currency is our speciality, and we’ll use our expertise to create a risk management strategy tailored to your business.
For instance, we can help you set up forward contracts. These allow you to fix an exchange rate for up to a year, making it easier to forecast your profits and plan strategically for the future.
You can also use market orders to target exchange rates above or below the current market level. Your transaction will automatically be triggered if the market reaches that level, helping you capitalise on strong exchange rates and protect yourself from unfavourable movements.
Your personal business account manager can guide you through the various options and help develop a strategy that meets your unique needs. We’ll also help you execute the strategy and continually evaluate its effectiveness, looking for ways to adapt to any changes and capture new opportunities.
If you want to find out more about our services, please do get in touch. Our team would be happy to find out more about your business and see where we can add value, and there’s no obligation to make a trade if you decide to open an account.
