The impact of the US election on the currency markets
The US election will have a major impact on the currency markets, with results expected in at around 4am. I would expect the markets to react in a less volatile fashion if Hilary Clinton is to gain power as she is seen as the safer bet for the US economy. Janet Yellen the head of the Federal Reserve indicated at the end of last year there could be as many as four interest rate hikes during 2016, none of which are yet to materialise. Although the FED are meant to act as a separate entity to the government I can’t help that think an interest rate hike has been put on hold due to the uncertainty surrounding the US presidential election. If Clinton gets in it would bring some form of stability to the US economy and a rate hike in December would be far more likely.
Although Trump is the current underdog, the election is far from a foregone conclusion. If Trump gets in I would expect big swings in value for the US Dollar. His outlandish ideas if implemented will have major implications on the world economy. He has stated his intentions to cut trade levels with China which potentially could wipe trillions off both country’s GDP. I hate using the word trillion, it reminds of school ground exaggeration, but on this occasion it is justified. He also managed to wipe 10% of the Mexican Peso due to his views on immigration and he hasn’t even got into the oval office.
Possible outcomes for Major Currency Pairings<
In Event of a Clinton Victory
Expect USD to gain further ground on the Pound. Not large gains as I think this is factored into the market to some extent.
Expect the US Dollar to weaken considerably, this may be a small window of opportunity for US Dollar buyers as further Brexit concerns will no doubt weaken Sterling in the near future.
EUR/USD is the most frequently traded currency pairing in the world. Expect volatility.
Expect Dollar strength as investors flood the US Dollar as a safe haven investment.
Expect the US Dollar to weaken significantly. The Euro is currently in a fragile position due serious underlying problems such as the Greek debt crisis, Italian Bank’s bad loans in excess 0f €360bn, shocking inflation levels and the threat of further referendums. If you are buying US Dollars it would be wise to take advantage of this possible outcome.
If Clinton wins expect the Aussie to fall quite sharply in value as investors leave the riskier Aussie for the safer bet of the US Dollar as stability is returned to the US economy.
Expect the Australian Dollar to jump in value. It may well be one of the first picks for investors along with the New Zealand Dollar due to the high levels of interest available.
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Executive Dealer – Foreign Currency Direct PLC