Understanding what impact Biden's presidency may hold for the dollar
What does Mr. Biden mean for the US stock market and global financial markets? What are the prospects of the US dollar and the oil market under a presidency of the avid Democrat at the helm of the largest global economy? Looking back at the last 3 decades, experts make a conclusion that unlike the elephants, the donkeys have been poised to exploit the US dollar as a means of putting pressure on markets, US trade partners, and competitors. Hence, the greenback will be set in motion and trade with volatility in any currency pair in the nearest 4 years.
US dollar under Joe Biden's presidency
In the second half of 2020, apart from the COVID-19 pandemic, the US presidential election was the other market-moving event to place strain on the US currency. Dollar traders rushed to speculate on massive dollar selling while global investors were watching open-mouthed the battle on Forex. The US dollar is especially vulnerable to political jitters, losing ground even at prospects of a political crisis. So, the market was anticipating the storm in November 2020. The US dollar turned sour following the first reports that the election would spring unpleasant surprises and none of the rivals would admit defeat. After Trump tweeted "Stop the count!", it became evident that the US was on the verge of a political crisis. However, as soon as Wall Street barons had landed big deals on the weak US dollar, the political crisis in the US settled down and the greenback managed to recoup some of its losses.
Donald Trump stopped challenging the election outcome and acknowledged de facto Joe Biden's win. So, the crisis ebbed away. Remarkably, even the assault on the Capitol building by Trump's supporters did not shake the market. Investors have calmed down mulling over Biden's policy on domestic and overseas commodity markets, diplomatic relations with Beijing, Moscow, Berlin, and Brussels. Besides, market participants are also concerned about Biden's tools to deal with dubious allies like Saudi Arabia, Turkey, Iran, etc. One thing is certain about Biden's policy and prospects of the US dollar for 2021. Unlike Republicans, Democrats are able to fine-tune the national currency more skillfully and efficiently. Therefore, those traders who work with the trading instruments involving the US dollar should be ready for "unexpected" spikes and plunges of the greenback.
Why US dollar has bearish prospects
Reason 1
Trump's
administration cut taxes dramatically, encouraging wealthy individuals and
corporations to run their businesses inside the country. Biden aims to roll
back Trump's tax reform, thus raising corporate taxes. In this case, the US
economy could see a massive outflow of overseas investments. Such a scenario is
bearish for the US dollar. Besides, if the pandemic persists through 2021, the
greenback is set for the broad-based weakness. At the same time, emerging
markets currencies are expected to halt their 8-year bearish trend. Stock
analysts reckon that a net inflow of foreign investment in the US is set to
shrink notably and it will be redirected to overseas markets in the second half
of the year.
Reason 2
The trade war with China will go on in the current year. It is wrong to think that the US-Sino trade war is a personal whim of Donald Trump. No doubt, Joe Biden will forge ahead with the trade conflict because it benefits the US economy. The matter is that the trade war will be more predictable without risk of escalation under Biden's administration. Such a state of affairs could become another catalyst for growth of emerging markets currencies, thus putting pressure on the US dollar.
Reason 3
The euro is widely expected to advance against the US dollar. Joe Biden is going to improve relations with the EU that will provide a boost for the euro. Under this scenario, investors will lose interest in the US dollar as a safe-haven asset, shifting focus towards emerging markets currencies on the back of fading risks of trade wars between Washington and Brussels.
Reason 4
The Federal Reserve is likely to advocate for massive accommodation, thus keeping interest rates at lows for over three years. Democrats could soften monetary policy in parallel with massive cash injections into the domestic economy amid purchases of corporate bonds. The same measures were taken under Obama's presidency. This will depreciate the US dollar but at the same time spur the ailing economy. The thing is that the US economy will need almost $6-7 trillion to gain momentum, but the central bank is capable of providing just $2-3 trillion. When it came to Donald Trump, he neglected such a tool as fiscal stimulus.
Reason 5
Experts foresee expansion of the money supply designated as M2 which includes cash, checking deposits, and fixed-term deposits. This metric swelled $3.3 trillion from April to October 2020 that comes in at $6.7 trillion.
What factors could support US dollar
The cash circulation in the global economy tends to decrease that automatically entails low inflation of currencies. Over the recent 12 months, the US dollar's inflation is measured at 1.4% that is an extremely low score. In fact, it is even below the Federal Reserve's long-run inflation goal of 2%. In the wake of the 2008 economic crisis, inflation risks of the US dollar's inflation never came true. Lots of market participants were betting on gold as the most reliable safe-haven asset. However, their bets were wrong.
How and where to earn from any USD forecast
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