One of the leaders in forecasting currencies, Deutsche Bank, has taken the information known so far about the election and changed the forecast of the United States Dollar in this tight presidential election as the new Congress is looking to be in legislative gridlock for the next term. The move is in a positive direction however with the new status being neutral.
Their global co-head of FX research George Sarvelos commented that “With the US election outcome extremely uncertain, we are changing view and turning neutral.” There are three major reasons why Deutsche Bake has upgraded the forecast for the dollar going forward. They are the decreased likelihood of an economic bailout, an increased risk of a contested election, and a brutal wave of coronavirus cases sweeping across the country this winter.
In a statement by Deutsche Bank they said that ““We see the risks as skewed towards a deterioration in Covid outcomes, an absence of fiscal support, persistent institutional uncertainty and broader negative growth surprises in the US in coming weeks.” On top of that “Whoever wins the White House, the odds of a structural shift towards easier fiscal policy in the US have dramatically declined.”
Surprisingly the apparent results in the election and the change associated is considered more positive for the United States Dollar in the Foreign Exchange market than either a Democratic Party trifecta in Washington or a Trump reelection. It was expected that if either of those situations happened there would be a large, massive bailout quickly.
But with hopes of the Democratic Party taking the Senate decreasing the risk of legislative gridlock between the Democratic controlled House of Representatives and the Republican controlled Senate. Those two sides, plus a Trump White House, were unable to secure a bailout throughout the summer and the fall. Whomever ends up winning the Presidential race won’t have full control of government to help speed the process along.
The outcome of a contested election also appears significant per the analysts and that the risk of a large recount and court cases about it could easily last into December. That uncertainty, along with the politicization of coronavirus prevention measures, decrease the ability to provide financial support.
You may wonder why these negative factors would strengthen the currency on the exchange market, but with the United States Dollar still considered a safe haven asset should allow it to weather the storm.