THE TRANSATLANTIC MAGAZINE
With the US Election less than a week away, a financial analyst has estimated that there's a 60% chance of the dollar falling in value after the US Election, irrespective of who wins.
Explaining his prediction, Motoki Maruyama, Head of FX and Rate Trading at Mitsubishi UFJ Financial Group, said that "A scenario in which the Democratic Party wins the White House, gains a majority in the Senate and retains a majority in the House of Representatives would likely unleash a multi-trillion-dollar package of fiscal stimulus and result in a major expansion of the budget. In the short term, Washington's effort to issue trillions in new debt in order to spend its way out of a recession would lead to a 'risk-on' environment and a sell-off in the dollar that would exert downward pressure on its value."
Maruyama goes on to say that, in his view, there are three scenarios which could "lead to a 'risk-off' environment and a stronger dollar in the near term";
1) a White House victory by Democratic nominee Joseph R. Biden with Republicans retaining their majority in the Senate;
2) a victory by the incumbent President, Mr. Donald J. Trump; or
3) a contested election result with no clear winner for a protracted period.
Maruyama says that all "three scenarios could amplify political gridlock and throw prospects for a stimulus plan into question—at least in the immediate future—since we believe the Democrats will likely keep control of the House of Representatives".
Maruyama goes on to suggest that the dollar will weaken in the long term against most major currencies, as US interest rates are likely to remain low.
For more insights from MUFG on how Covid-19 and other factors are affecting the US economy, go to www.mufgamericas.com/insights-and-experience/insights