US Election: Could Trump shoot the USD in the right direction?

Election Dynamics and Leadership Shifts

On Tuesday 5th November the American public will head to the ballot boxes to vote for their next president. At the moment Joe Biden is in charge and has recently announced he will be not looking to run for another term in office. Donald Trump also could not run for a second term as he lost his last election to Biden last time out.

Legal Battles and Political Narratives

Now Kamala Harris has been endorsed to be the next Democrat leader the fight has been dubbed the “prosecuted against the prosecutor”. Kamala Harris used to be the District Attorney for San Francisco and moved her way up through the ranks to become Vice President during the Biden administration. Trump however has been found to be on the other side of the law after having been found guilty of falsifying business records. In addition to this, a Florida judge dismissed a case related to his handling of classified documents. Lastly, He’s been charged with four criminal counts, including conspiracy to defraud the US and conspiracy against the rights of citizens. Trump launched an appeal in this case, claiming he had broad immunity from prosecution as president, due to a 1982 precedent that recognized immunity in civil cases. He has denied wrongdoing and claimed the Biden administration is behind the prosecution against him.

Economic Policies and Market Reactions

Back to the election, the polls and odds are predicting a pretty comfortable win for Donald Trump at the moment. But that is only half the real story though. The outcome of the presidential election seems to be hinged on six purple states President Joe Biden won in 2020. Arizona, Georgia, Michigan, Nevada, Pennsylvania, and Wisconsin. Currently, in the polls, Trump is ahead in all of these states. Virginia has become a surprisingly contentious state in this year’s election, with a July 9-12 New York Times/Siena poll noting Biden winning by just three points in the state, after beating Trump there by 10 points in 2020. In addition to this at a recent Republican rally, Trump was shot in the ear narrowingly avoiding death and this seemed to push the party bandwagon even more.

Impact on Currency Markets

This election is set to have a big impact on currencies. Trump set the US dollar on fire after his election win last time out as his “Make America Great Again” campaign sent money flooding back to the greenback safe haven. Even this time, a policy promise of tax cuts and regulation rollbacks could help spur economic growth and send investment back to the nation in full force. Of course, this will have a good impact on the USD. A key issue in the Trump campaign has always been his propensity to sanction nations with economic penalties. Tariff hikes are usually Trump’s major weapon and this could hurt the currencies of any nation that the potential president could target. A couple of other interesting things to look out for are Trump’s stance on immigration. As the Republican party looks to tighten borders, we could see the labor market suffer, and although there may be short-term relief with tax cuts the workforce pressure could pile on. On the face of it, this could bring inflationary issues back into the spotlight. That in turn, could keep rates higher for longer and also strengthen the US dollar.

Global Trade and Market Sentiments

The last time Trump won the election, the dollar index saw a sharp uptick leading into the election campaign and when he headed into office. But after peaking at 103.82 there was a sharp fall as tariffs and economic sanctions hit. Then as time went on and the Fed introduced certain economic policies and the US stabilised the greenback started to regain its strength. As the Democratic party started to gain popularity once again the Dollar then started to take a tumble and as Trump left office the DXY settled around the 90-92 area. The strong dollar has a positive impact in reducing US inflation and this time round Trump will be looking to boost the economy as much as possible as the Republican party would wholeheartedly support.

Gold’s Role Amidst Uncertainty

The S&P 500 has a slightly negative reaction to Trump on occasion. Rising tensions with China and the issues with bringing back jobs to the US from other countries mean that global trade is sometimes affected. Labor is obviously cheaper outside the US, so multinational companies struggle with some of Trump’s narratives. Putting tariffs on nations can also hurt sales for some of the major companies.

Prospects of a Trump Presidency

Gold however can have some positive moves. Any uncertainty caused by a jovial prospective leader sends safe-haven flows toward the yellow metal. If tensions increase between the US and other major economies gold is often a place where investors seek safety and in addition to this if inflation continues to be an issue another solid plus point for gold is its inflation-beating returns. During the last Trump presidency, gold moved from roughly $1,100/oz to $2,000/oz. Of course, there were other factors in the price increase but that is a pretty significant move.

Now Biden has pulled out of the race to become the next president the odds of a Trump administration have increased once again. Although this could mean mixed fortunes for the stock markets, gold and the US dollar have previously performed well when Trump was at the helm. There are various new factors leading into this presidential run-in but Trump looks favorite to win in November.