Investing.com – The upcoming US elections may be a crossroads for the dollar, as a Trump win is likely to initially strengthen the US currency, while a Harris win could lead to short-term weakness, but experts warn against betting on any immediate win. . -The movement in results is likely to continue until 2025.
“It would be a mistake to assume that the reaction after the result will continue to determine the trend through 2025. There are plenty of ways the currency market could stop or reverse that initial move, for example if actual policy outcomes fail to match expectations,” analysts said at HSBC Bank said in a note on Friday, “or if other factors replace political forces as the main drivers of the FX market.”
The bank outlined several scenarios and their potential impacts on the dollar, with a clean Republican sweep, paving the way for further fiscal stimulus, which is seen as the most bullish for the dollar in the short term.
“The US dollar is likely to rise sharply if there are signs of future fiscal stimulus that would temper market expectations of Fed easing in 2025,” HSBC said, adding that increased trade tariffs would also support the dollar, especially if… fuel inflation expectations.
Analysts added that in the event of a divided government, a Trump presidency would likely lead to an initial rise in the dollar, but this scenario lacks the expectations of fiscal easing that a clean sweep would bring.
However, a clean Democratic sweep could lead to a “slingshot trajectory” for the dollar, with the initial weakness likely to be reversed in 2025 as markets price in various forms of fiscal stimulus.
HSBC views a Harris presidency with a divided government as the ultimate “status quo outcome” which may see some initial weakness in the dollar but likely has no lasting effects on the currency.
Analysts said the dollar has historically flexed its muscles in the run-up to the US election, driven by rising safe-haven demand amid uncertainty over the election results – a pattern that could repeat itself in the coming weeks.
But betting that the dollar’s move immediately after the election will continue until 2025 “may be a mistake,” HSBC warned, stressing the need to evaluate subsequent policy outcomes and whether they impact various factors including fiscal, trade and monetary policy. Meets expectations.
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