Election 2020: what a Biden victory could mean for America | The Economist
The US dollar is poised to weaken further amid market sentiment that geopolitical risks are weakening amid election results, and the next stimulus package is likely to be less than expected.
Citi Bank analysts predict a weaker dollar in the future, given that the administration Joe Biden reduce uncertainty in international trade policy.
«Democrat victory means a return to a more traditional way of running the country. Significant changes await foreign policy. Negotiation tactics "we will impose sanctions and duties" will end», – wrote on Monday by the chief investment officer of the bank David Beilin (David Bailin) and economist Stephen Whiting (Steven Wieting).
This will benefit many of the world’s financial markets, especially emerging markets, they say..
«Perhaps the greatest clarity post-election is global trade. US foreign policy will enter a more predictable phase without escalating trade threats. We expect the dollar to fall and emerging markets to rise», – they wrote.
On Friday, the index, which tracks the US currency against a basket of other currencies, hit a two-month low.
«It was quite unexpected that after the election result, the Chinese yuan and other Asian currencies began to rise, and the dollar underwent a sell-off.», – said Adam Margolis (Adam Margolis) of JPMorgan Private Bank.
Asian currencies have strengthened in the past few days, while offshore CNY peaked at 28 months on Monday. Japanese yen rose to an eight-month high.
Margolis shared his opinion that Biden’s victory will reduce geopolitical risk, which will cause «side effects» outside Asia.
«The prospect of a reduced volume of future financial support in the US may lead to lower yields. I think the Fed will again have to consider the possibility of introducing negative rates», – he added.
Lower rates affect the dollar because investors may flee currency-denominated assets that generate low returns.
Brokerage company Phillip Futures also announced the likely weakening of the dollar if the second stimulus package turns out to be less than expected..
«Bearish scenario increasingly real for the dollar on signs that the Fed’s money printing, rather than government spending, could be used to support the economy», – experts say.
These forecasts increase pressure on the regulator, forcing an increase in the bond buying program and other financial support policies, which, in turn, negatively affects the dollar..