The US dollar has been a big player in the currency market this year. Its strength has been highlighted by the performance of over 4% share Dollar Index, which reproduces the performance of the greenback against a basket of the main currencies. The US currency has gained ground thanks to the extraordinary resilience of the US economy, despite the Federal Reserve having serially raised interest rates starting in March 2022 to the 5.25%-5.5% range. Furthermore, while elsewhere central banks have begun to move by cutting the cost of money (see ECB and SNB), in the United States the Fed has kept the reference rate at high levels and will probably continue to do so for several months.
US Dollar: How Much Will the US Elections Affect the Price?
It is likely that until the next American elections which will be held in November 2024, there will be no major changes in the greenback’s prices. Unless, as the vote approaches, one of the two candidates: Joe Biden and Donald Trump, has an overwhelming majority in the polls. At the moment the tycoon is in the lead in the voting intentions of voters, but preferences can always change significantly over time depending on various parameters, not least the performance of the economy.
In last week’s televised debate the current president of the United States came away with broken bones, by his own admission. This could have an impact ahead of the elections, unless the Democratic Party he represents decides on its own replacement presidential candidacy. If things remain as they are, with Biden and Trump battling it out, the US dollar could have a different dynamic depending on who wins. In both cases, however, the effects are unclear. Let’s see what could happen in each scenario.
Biden victory
If Joe Biden wins, the US dollar could maintain its strength, but it is not possible to guess until when. During the 81-year-old Pennsylvanian’s tenure in the White House, the greenback strengthened, as the US administration implemented a series of fiscal stimuli that allowed the Fed to fight inflation by raising interest rates. With higher yields a currency is more in demand and therefore tends to increase in value. Furthermore, Biden has been able to maintain a certain cooperation with allies in the context of the sanctions applied to Russia. This rallied everyone around the US dollar, the global reference currency, extinguishing any possibility that other currencies could emerge as reference currencies.
However, all this does not mean that Biden’s re-election must necessarily keep the dollar strong. Indeed, the excessive budget deficit, considered by many to be at alarming levels, reduces the room for maneuver to implement fiscal policies that are too accommodating, as the Fed prepares to lower interest rates. This package of conditions does not play in favor of the US dollar.
Trump victory
The dynamics of the US dollar with a Trump triumph are even more difficult to discern. During the 4 years of the Republican leader’s tenure in the White House, the national currency strengthened by 5% following his surprise election in 2016 and slipped by 5 percentage points after his defeat in 2020. This suggests that the dollar will strengthen under his leadership. In truth, Trump is unlikely to implement policies to reduce the fiscal deficit, while if he implements his intention to increase import duties, he will trigger an increase in spending on domestic goods, fueling inflation. As a result, the Fed will be forced to keep interest rates higher, favoring the dollar.
It must be said, however, that Trump does not like high rates too much and during his 2016-2020 mandate he clashed several times with governor Jerome Powell on this very aspect. A new Fed chair will be named in May 2026, and Trump and his entourage may ultimately opt for a more compliant candidate. The effect on the dollar would therefore be mitigated.
