Time to talk – US election update

Welcome to our latest US political update with 35 days until the presidential election.

Each week we will take a look at the likes of policy changes, polling shifts, the continued impact of Covid-19, the geopolitical stances that the candidates are taking and of course, the economic impact on the US, the dollar and global trade. The US presidential election remains the most important political event globally and markets are starting to pay attention to the run-in to November’s polling day.

Debates and policy

For most commentators, the election kicks off in earnest in the early hours of Wednesday morning as President Trump and Vice-President Biden square off for the first debate of this election cycle. Over the course of 90 minutes, the two candidates will debate six topics – The Trump and Biden records, the Supreme Court, Covid-19, the economy, race and violence in our cities and the integrity of the election.

It is the last one that has been thrown into sharp focus by comments from Trump last week that he would not commit to a typical, peaceful transfer of power to Biden should he lose the election. Trump’s belief that voting via absentee ballot or postal vote is inherently corrupt means that come November 3rd there is a small but not insignificant chance that the outcome of the election is contested via the courts or other mechanisms.

While there has never been an instance of a US President denying the outcome of an election, there have been contested results; Florida in 2000 being the most recent and relevant example.

Market reaction to a contested outcome

While everyone’s base care remains a peaceful transition between administrations, there is always the chance that we wake up the day after the election and do not know which candidate will be taking the oath of office on January 20th and that leads to days, or even weeks, of market stress as we work out the rightful victor.

In 2000, where the state of Florida remained undecided for weeks following the election due to inappropriately filled in ballots equity markets declined, volatility increased, and the dollar jumped higher. It is another order of magnitude in difference however if a losing candidate is unwilling to yield power and we would be careful in ascribing too much faith in a strengthening dollar in that circumstance. In such an environment, it would most likely be the Japanese yen that we would see move higher.

The week for the USD

Despite Friday being ‘Jobs Day in America’ with the publication of the latest payroll figures, it is likely that the debate between Trump and Biden will dominate market proceedings. Investors will be quick to express a view as to who ‘won’ said debate and their respective ideas on positioning in the dollar for that candidate’s wider policies should they win the vote on November 3rd. In fairly binary terms, we would anticipate a Biden ‘win’ in the debate to push the dollar weaker whilst a Trump ‘victory’ would likely keep the USD strong.

The debate kicks off Wednesday at 2am BST.

Have a great week.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.