Citi (wealth management) on the election and the US dollar.
Very short term:
- There is a risk of a USD rally in the days around the election, particularly in the event of a contested result. This tail risk could lead to significant political and societal unrest, and cause a negative shock to risk assets and a USD rally.
Further out:
- Regardless of who wins the November election, fundamental supports for the USD have been eroded since the onset of the COVID-crisis and are unlikely to reverse over the medium term. The Fed's uber-loose policy of QE and lower for longer rates and average inflation targeting is indicative of a lower USD over time. Meanwhile, US federal deficits are rapidly expanding at a time, which may also unfavor USD.
More specifically:
If Trump is returned to office:
- Potential to derail the recovery in global trade and would likely be detrimental to the Euro
- Euro down may lead USD up
If Biden wins the become president:
- Supportive for currencies that are strategic allies such as Europe, Japan and EM
- Lower USD
- Risk to oil exporting currencies like CAD
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Thoughts welcome in the comments!
