“It would be a mistake to assume the post-result reaction will continue to set the tone into 2025. There are plenty of ways in which the currency market could stall or reverse that initial move, for example if actual policy outcomes fail to match expectations, or if other factors supersede political forces as the key drivers to FX,” analysts at HSBC said in a note on Friday.
The bank outlined several scenarios and their potential impacts on the dollar, with a Republican clean sweep, which smooths the path for more fiscal stimulus, seen as the most bullish for the greenback in the short term.
“The USD would be likely to rally sharply if there are signs of future fiscal stimulus that would temper market expectations for Fed easing in 2025,” HSBC said, adding that higher trade tariffs would also support the dollar, particularly if they feed inflation expectations.
In the event of a divided government, a Trump presidency would still likely trigger an initial dollar rally, the analysts added, but this scenario lacks the fiscal easing expectations that a clean sweep would bring.
A Democratic clean sweep, however, could lead to a “sling-shot path” for the dollar, with initial weakness potentially reversing in 2025 as markets price in different forms of fiscal stimulus.
A Harris presidency with divided government is viewed by HSBC as the ultimate “status-quo outcome” and one that might see some initial dollar weakness but would likely not have lasting implications for the currency.
The dollar has historically flexed its muscles in the run-up to U.S. elections, driven by rising safe-haven demand amid uncertainty about the election outcome—a pattern that could repeat itself in the coming weeks, the analysts said.
But betting that the immediate post-election move in the dollar will continue into 2025, “could be a mistake,” HSBC warned, underscoring the need to assess ensuing policy outcomes and whether their impact on various factors including fiscal, trade, and monetary policy meets expectations.
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