The US dollar will get a major boost if Donald Trump wins the US presidential election and a Republican sweep gives his party control of Congress, according to Deutsche Bank.
Such an outcome would likely push bond yields higher by promising to sweep in tariffs and fiscal stimulus in the form of tax cuts. The result, strategists lead by George Saravelos said, would push up the dollar. In such a case, they recommended buying it against the euro, Mexican peso and South Korean won.
By comparison, if Kamala Harris wins and Democrats gain control of Congress they advise buying emerging-market currencies and selling the dollar against the Japanese yen, anticipating that the Bank of Japan will have latitude to keep tightening monetary policy.
“We see the dollar rising across all currency pairs in a red sweep,” strategists said. “The broadest dollar losses would likely be in a blue sweep, albeit more limited than the dollar gains in a red sweep.”
The race remains a razor-thin contest just three weeks before Election Day. The dollar has been advancing this month as traders pared back the amount of rate cutting expected from Federal Reserve after the job market expanded at a faster-than-anticipated pace.
The euro lost more than 2% against the US dollar in October, while the Bloomberg Dollar Spot Index advanced 2.4% in that time.
The outlook is more unclear if either presidential candidate winds up with a politically divided Congress, which would present a major obstacle to enacting significant policy changes. But Deutsche Bank cautioned that it’s “highly uncertain” how exactly markets will respond in the immediate wake of the election, regardless of the outcome.
“We see the dollar strong but FX carry trades as most likely to suffer in a Trump victory without Congress,” strategists wrote. “Asia FX is likely to rally the most in the event of a Harris victory without Congress.”
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