At the time of writing, Kamala Harris had extended her lead against Donald Trump, her rival in the 2024 US presidential election. A lot can happen between now and November, and it’s probably too early to call a clear frontrunner (especially with the prospect, or perhaps reality, of an ‘October surprise’).

Weaker dollar by design?

Trump says he wants a weaker dollar. A devalued US currency would boost US exports and make foreign goods less attractive, making American manufacturing great again. At least in theory. In practice, the outcomes would at least be debatable.

However, what candidates say they want and what their policies achieve are two separate things. Morgan Stanley argues that if President Trump really were to impose significant tariffs on imports, as he has vowed, the effect would be to strengthen the dollar.

The logic is as follows: as other countries feel the pinch of US tariffs, investors will pour money into the US as a relative beacon of stability, firming up the USD.

Trump has also promised to crack down on immigration,  which would put pressure on the labour market, pushing up inflation.

On the other hand, Trump has suggested he would end Federal Reserve independence. Trump has previously criticised the Fed for being too slow to cut rates. Will lower rates depreciate the dollar?

Could a Trump administration maintain inflationary policies – tariffs, and bans on immigration – while forcing the Fed to keep rates low?

House & Senate

It’s important also to bear in mind that the presidential election coincides with elections of the US House and Senate, with a number of seats on the line. The outcome will determine how much power the incoming president will have in realising their administrative agenda.

A Trump administration supported by a Republican majority House and Senate could see substantial tax cuts, more spending, higher inflation, and potentially a higher USD on the back of expected growth and higher rates.

A Democratic sweep

On the face of it, a Kamala Harris victory and Democratic sweep of the House and Senate seems like the least dramatic outcome for currency markets. President Harris likely wouldn’t slash taxes. Nor has she campaigned on a pro-tariff, anti-immigration platform.

However, we should recall that President Biden maintained many of the Trump-era tariffs against China. ‘Bidenomics’ also involved ambitious industrial strategy. Policies like the Inflation Reduction Act (IRA) are helping to drive investment in jobs and construction in the clean energy sector.

Would President Harris scale up these projects or even expand the scope of US industrial policy? Would this keep inflation ticking over, leading to rate hikes, and increased dollar strength? Time will tell.

Global forex responses

American trade policy will affect the whole world. Other countries could respond to US tariffs by reciprocating in kind. Or they may work to devalue their currencies to make exports more competitive.

In response to a Trump win, Europe may also be motivated to invest in local defence industries, on the assumption that they may no longer take US support for European strategic initiatives (such as the war in Ukraine) for granted. Alternatively, a Harris win could prompt Europe to scale up its green industrial policy, to compete with Chinese and US investment in renewable energy. Both scenarios could drive inflation, leading to rate increases down the line.

Your US election markets resource

For insight and analysis on policy, global markets and much more, don’t miss the US Election coverage on Overleveraged podcast, hosted by Finalto Chief Market Analyst Neil Wilson.  You can listen to Overleveraged via the leading major podcast platforms.

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