Attention to USD ahead of US elections – Danske Bank

Senior Analyst at Danske Bank Kristoffer Lomholt has assessed the prospects of the greenback in the upcoming US elections.

Key Quotes

“The US election is only a few days off and markets have already priced in a substantially higher risk of a Trump victory, with risky assets declining in line with our view”.

“In FX, EUR/USD has moved up by 2.5 figures as polls show a narrowing of Hillary Clinton’s lead over Donald Trump. If Trump wins, we expect EUR/USD to rise to 1.13-1.14 within a few days, while we estimate USD/JPY would fall to 100”.

“Larger fiscal expansions, which we think Trump would be successful in implementing over time, have tended to drive USD weakness with the exception of Reagan’s first term in 1981-84, when the newly-appointed Paul Volcker raised interest rates sharply”.

“We do not expect the same to occur in the case of a Trump win. If Clinton wins, we would look for a slightly stronger USD short term versus most G10 currencies”.