Election Day is nearing and politics are certainly not the only topic of concern. Surrounding an election year there are waves of uncertainty at the foreground of politics and our economic health as a nation. Let’s take a deeper look into the potential impact we may see from the election and how that will affect the US dollar.
Value of the USD
It is not uncommon for the value of the US dollar to weaken during the harrowing times of an election year. The dollar has traditionally been considered a safe haven currency that accounts for around 40% of FX daily trading. During an election year, this statistic is likely to decline as investors and traders become reluctant and would rather “sit and wait” until the markets are secure.
The US dollar has fluctuated in 2016, but has experienced strength against the pound. In fact, the pound sterling has fallen about 12% against the dollar. This, however, is not necessarily the case for other common safe haven currencies such as the Swiss franc and Japanese yen. The potential for the dollar to weaken due to uncertainty during this election year runs a great risk, but there is always the possibility that investors will hold onto their US dollars allowing the reverse effect to transpire.
Party Effect: How will your vote impact the U.S. dollar?
On November 8th, Americans will decide between the Democrat candidate Hillary Clinton and the Republican candidate Donald Trump. If there is one thing both parties can agree on, it’s strengthening the value of the USD. Though they have a common goal, the parties are vastly divided on their means to achieve it for the greater good of the nation.
A vote for the Republican party could cause an immediate short-term fluctuation to the US dollar due to any major policy changes Trump might implement. The underlying uncertainty of the policy changes influence on the markets could weaken the USD initially, but then proceed long-term as a potential growth opportunity for foreign trade markets.
Due to the uncertainty investors have on any policy changes, they may pull back their international investments, creating value to the USD. Although investors may be pulling back their foreign investments, the general consensus of Trump’s lack of experience in politics and unbalanced economic plan may ultimately have an adverse effect.
Comparatively, what we could expect from the Democratic party is an increase in government spending due to the planned efforts for job creation. Electing a Democrat to the presidency should result in higher tax rates on corporations and bearish trading that favors a declining market. Clinton having her hand in ‘big businesses’ and heavy involvement overseas gives voters a sense of comfort with their foreign investments.
Although it seems there will be more comfort in foreign investments under a Democratic leader, there are other economic concerns. Investors and traders as a whole may be reluctant to buy in the market as they see the market falling. These trading decisions are largely due to the rise in corporate taxation rates along with large governments that coincide with Democratic leadership.
The election in November is key to gaining insight on the future fluctuation of the US dollar and its impact on trading markets.The dollar is ultimately going to be affected in many ways, but it is certain that the election will create inevitable changes no matter what candidate takes office.
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