Investing.com — The upcoming US election could prove to be a fork in the road for the dollar, with a Trump win likely to boost the dollar initially, while a Harris win could cause short-term weakness, but experts warn against betting that an immediate post result shift will likely continue into 2025.
‘It would be a mistake to assume that the post-outcome reaction will continue to set the tone in 2025. There are numerous ways in which the currency market could slow or reverse that initial move, for example if actual policy outcomes do not meet expectations to fulfil. , or if other factors replace political forces as the main drivers of currency rates,” HSBC analysts said in a note on Friday.
The bank outlined several scenarios and their potential impact on the dollar, with a Republican clean sweep paving the way for more fiscal stimulus, seen as the most bullish for the dollar in the short term.
“The USD would likely rise sharply if there are signs of future fiscal stimulus dampening market expectations for Fed easing in 2025,” HSBC said, adding that higher trade rates would also support the dollar, especially if they boost inflation expectations feed.
In the case of a divided government, a Trump presidency would still likely lead to an initial rally in the dollar, the analysts added, but this scenario lacks the expectations of fiscal easing that a clean slate would bring.
However, a Democratic clean sweep could lead to a ‘winding path’ for the dollar, with initial weakness potentially reversing in 2025 as markets price in various forms of fiscal stimulus.
A Harris presidency with a divided government is seen by HSBC as the ultimate “status quo outcome” and one that could see some initial weakness in the dollar, but is unlikely to have any lasting impact on the currency.
Historically, the dollar has flexed its muscles in the run-up to the US elections, driven by rising demand for safe havens amid uncertainty over the election outcome – a pattern that could repeat itself in the coming weeks, the analysts said.
But betting that the dollar’s immediate post-election move will continue into 2025 “could be a mistake,” HSBC warned, underscoring the need to assess the resulting policy outcomes and their impact on several factors, including assess fiscal, trade and monetary policies. meets expectations.
