Influence of US Presidential Elections on Global Currency Markets

With its vast impact on the economic and financial markets, the US Presidential election is a pioneering global event for Forex Brokerage. The currency market highly depends upon political shifts and the US being the world’s largest economy, can influence international markets tremendously. With a new administration, there are chances of new policy incorporation, economic reforms, and trade relationship shifts, which may interrupt the volatility of Forex brokerages during the election cycles. In this blog, let us consider the points that influence global currency markets during the US presidential election.

Uncertain Market Sentiments:

There is increased uncertainty experienced before the election time. There will be shifts in policies, and economic plans based on the potential winner speculations. Due to such uncertainty, the market becomes risk-prone and investors and traders have to look for safe precious currencies and commodities like gold, the Swiss Franc (CHF), and the Japanese Yen (JPY). Sentiments do not allow them to trade USD pairs for the short term. As studied from the previous elections, the USD tends to be strong during uncertainty and is still considered as a reserve currency. Still, if there is political instability, there are chances of a weakening USD.

Market impact of differences in Policies:

Each presidential candidate has different views on a particular policy. It’s the result of the election, that determines the direction of the US economy for the next four years impacting the policies related to trade and foreign currencies. These highly impact global currency markets. Generally, we can view the policies of each candidate in two ways:

1. The policies that favor businesses and deregulation often make the USD stronger. Such policies ensure growth, higher investments, and dollar value-boosting.
2. Policies that focus on government expenses and higher taxation can influence national debt and inflation, which in turn weaken the USD.

Worldwide Agreements in Trade and Tariffs:

Changes in trade policies after a new presidential election would affect global currencies which are tied with the US trade partners as the US is a big player in international trade. For example, The elections can affect Trade with China, leading to tariffs on imports from China which in turn affect the Chinese Yuan (CNY) and related currencies. Similarly, the new president’s policies could affect Canada and Mexico if there are changes to the USMCA agreement. This would affect the North American Trade influencing the Canadian Dollar (CAD) and Mexican Peso (MXN).

The role of the Federal Reserve during Election Cycles:

Even if the Federal Reserve operates independently, the political aspects continue to affect it. During election months, the policies of the Federal Reserve certainly affect the USD. For example, if the policy indicates maintenance of low interest rates, it may weaken the dollar because the investors would not be interested for a while because of lower rates.

Impact of the Elections on New Market Currencies:

The presidential election continues affecting emerging market currencies apart from the USD. For instance, if a new administration imposes higher tariffs on a particular currency that depends heavily on the US economy, the currency might weaken. Similarly, the election could make emerging market currencies stronger by increasing trade flows and foreign investment. Countries like Brazil, Mexico, and South Africa tend to experience higher volatility because of significant US trade exposure.

Trading Strategies and Market Volatility:

Elections tend to bring higher volatility before, during, and after the event. Therefore brokers and traders have to be prepared for price swings, unpredictable moves, and higher spreads. Certain risk management strategies would help them such as Hedging, Reduced Position Sizes, Focus on Safe-Heaven Currencies, etc.

Be prepared as a Forex Brokerage for the election after effects:

Election cycles are high time to ensure that your platforms are prepared for increased traffic and continuous queries. Being a broker you must provide educational resources and real-time market data and information to help your clients make informed decisions. Moreover, brokers can incorporate certain tools such as CRM and keep the clients engaged with timely content, market analysis, and educational blogs and vlogs.

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