How will USD exchange rate change facing the oncoming US election 2020?

The 2020 US presidential election is the 59th quadrennial presidential election in American history. Looking back at history, since the major western currencies adopted floating exchange rate after the collapse of the Bretton Woods system in 1972, the United States has held 10 general elections, six of which have seen a sharp fall in the dollar before the election. Politics is an important factor affecting the trend of forex. In order to avoid the uncertainties before and after the election, investors usually sell the domestic currency, which causes the currency to depreciate rapidly in a short period. For the forex market, the result of the US presidential election will lead to a short-term rise in the US dollar. After all, this is a long-term uncertainty factor that has become a certainty; unless the result cannot be released for a long time. Extension of the uncertainty will lead to a short-term and rapid decline of the US dollar.

As for the trend of the dollar, as long as the result of the US presidential election and the short-term uncertainty are on schedule, the dollar will be supported by some covering positions. On this point, the election result does not make much difference. The political factors often emerge suddenly, come quickly and go violently, without warning in advance, so it is difficult to predict them and they do great damage to the forex market, which often causes the forex rate to rise and fall, or even deviate from the long-term equilibrium price. However, when the event occurs, the trend of forex will change in accordance with the direction of its long-term equilibrium price.

Generally speaking, short-term price changes can only correct the direction of long-term forex equilibrium price at most, but it is difficult to change or completely reverse its long-term fluctuation trend.

Monetary Policy: Republican Party.

Fiscal conservatism is the business card of the Republican Party. The proposed monetary policy focuses on reducing national debt and private sector job creation. Republican candidates are often seen as a harbinger of more business-friendly legislation, lower taxes and tighter government spending.

Looking back at the 2014 mid-term election, Republicans were expected to control the U.S. Senate and introduce legislation to challenge the Federal Reserve (Federal Reserve, FED) 's low interest rate policy and quantitative easing). In the days before the election, the dollar reached its highest level against the euro, Swiss franc and yen expected the election result and potential policy shifts. Although this was a rare situation, the 2014 mid-term election did illustrate the relationship between party politics and monetary policy facing the dollar. As the poll data became more specific in the days beforethe election, traders found a reason to buy the dollar, expecting interest rates to tighten and currencies to appreciate in the long run.

Monetary Policy: Democratic Party.

The Republican Party is opposed to the Democratic Party, whose monetary policy is centered on creating public sector jobs and increasing government spending. Support for legislation on issues such as universal health care, education welfare and large-scale public works projects can be attributed to the policies of the Democratic administration.

The 2012 presidential election provided an example of market conditions during the election period in which Democratic candidates stood out. This highly competitive election is often seen as a tie by political experts, and the money market shows the uncertainty of “experts”. EUR / USD, USD / SWF and USD / JPY have narrow annual volatility ranges, with little change in exchange rate valuations. The market conditions faced by these major dollar currency pairs are often attributed to the coming period of uncertainty and the “wait-and-see” trading strategy adopted by traders and investors.

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