Election day = dollar pay day?  - Commerzbank

The US presidential election is likely to be the dominant event on the currency market next week as the likelihood that Donald Trump will win the election have increased again recently, said Antje Praefcke, analyst at Commerzbank. According to the analyst, this outcome would obviously be the less favourable option for the dollar: After all, the resultant massively higher uncertainty on financial markets would likely prevent the Fed from hiking its key interest rate in December.

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"Something dramatic" could happen in the US presidential election which will therefore be the overriding theme next week. Just over one week ago, Donald Trump appeared to have no chance but the tide has now turned against Hillary Clinton: According to the polls, it can no longer be ruled out that Trump will win the election. Market reactions so far to Trump's increasing chances imply that risk perception on financial markets would rise considerably if he were to win, with the prices of risky asset classes likely to drop noticeably.”

“Contrary to what usually happens in such a situation, the dollar would then also come under pressure. After all, this uncertainty would affect the world's dominant currency as distortions on (domestic) financial markets might prevent the Fed from hiking its key interest rate, just as it did at the start of the year (due to concerns about China and Chinese stock markets). Markets had to cope with a similarly digital event back in June in the form of the Brexit vote. While it is hard to draw parallels, political uncertainty has prevented a decline in scepticism towards the pound. The dollar could face a similar scenario. If Trump were to win, election day may thus turn out to be a dollar pay day on the currency market.”