The uncertainty of the election outcome is extremely high as both candidates, Vice President Kamala Harris and former president Donald Trump provide a completely different vision for the US. At stake is also the future economic outlook of the world’s biggest economy. The outcome may prove to be even more complex, as US House of Parliament seats and one third of the US senate seats will be contested. The election results are expected to be a big driver of the currency and financial markets, and volatility should be expected.
The US Dollar (USD) came under selling pressure early Monday as some betting sites indicated that Kamala Harris could win the election. Later in the day, the bearish action seen in Wall Street boosted demand for the safe-haven USD.
Polls show Trump and Harris neck and neck
Investors are expected to stay focused on exit polls and counting results coming from swing states as the day progresses. According to RealClearPolling, the Ipsos poll shows Harris leading by two points, (50 vs 48), and the Atlas Intel poll has Donald Trump leading by one, 50 vs 49. The TIPP poll has them tied at 48. In some swing states, such as Nevada, Georgia and Pennsylvania, Harris has closed the gap, but in Arizona and North Carolina, Trump holds the lead.
Impact on currency market
With a remarkably close US election and with the outcome expected to deliver a binary impact on currency markets, the foreign exchange market is trading at a respectful level of volatility, according to analysts at ING. They believe that “we need to see a Red Sweep for the dollar to push on much further. A Harris win would seem a benign outcome and prove a dollar negative – those three currencies: the euro, the Canadian and the Australian dollars could do well here.”
For the markets, the more difficult outcome will be Trump without the House of Representatives or a contested election. ING analysts explained that in its recent World Economic Outlook, IMF analysis warned that the “US economy could be 1% weaker than baseline in 2026 if Trump delivers on tariffs but could not offset it with tax cuts. For this reason, and given market positioning into the election, we think the dollar could come lower unless there is a Red Sweep.”
3 key election scenarios and their potential impact on markets
The US presidential election could result in big changes to economic policy and dollar volatility. The dollar, for example, is expected to rise on expectations of a Trump victory, while emerging-market currencies could strengthen if Kamala wins. Here are potential scenarios, each of which could bring different outcomes for markets.
- Divided government: If the Democratic candidate wins the presidency but Democrats fail to secure both houses of Congress, we could see a divided government. This scenario may lead to fiscal restrictions and challenge economic growth.
- Trump Wins: If Trump wins the presidency and Republicans control both houses, we could expect deregulation and business-friendly policies. While this scenario might be beneficial for small-cap industrials, energy, and defence, it will weigh on emerging markets as they could face increased tariffs, reducing their appeal to investors.
- Harris Wins: If Democrats secure both the presidency and Congress, we may see an extension of fiscal programs introduced in the Biden administration with technology, green energy, and infrastructure sectors benefiting. Emerging markets could also gain due to reduced political barriers and increased international investment.
Universal Partners: Helping you navigate market uncertainty
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