How will the US Elections affect Currency Traders?

With the 2016 Presidential Election just around the corner, the foreign exchange market is stirring and traders are feverishly speculating what the outcome will be on the 8th of November 2016.


When the world's largest economy, the United States, chooses a new president, it generates worldwide attention. Next month, the decision will be made as to who will be the leader. These elections don't only affect the US financial markets but have a big influence on Europe and the rest of the world as they are considered key to the prediction of future movement in US policies.


Looking back over this year, the US Dollar has shown good fortune against currencies such as the GBP, which can be put down to the UK voting to abandon its E.U. membership, but in comparison to other safe-haven currencies, such as the JPY and CHF, the dollar has shown weakness throughout 2016. When there is any sort of political uncertainty in a country, it can drive down the value of the currency of that country.


Donald Trump, who is running for the Republicans, and Hillary Clinton, who is running for the Democrats, are both promising to drive economic growth in the United States. Political values always seem to have an impact on a country's economy and almost everyone’s investing behaviour due to the uncertainty that surrounds the economic policies that could take effect after the elections. For currency traders, it is important to keep informed of the various factors, which will move the financial markets, and be aware of one’s emotional reaction towards the election. Emotions could affect the trades that are being placed during an election period and not a strategic view of who actually wins it. Research should be done so one doesn’t fall into the “confirmation bias” trap, where traders only research information which supports their initial beliefs.


Various news publications have reported, over recent months, that many politicians across Europe, Asia and Latin America have shown a critical view of Trump’s foreign policy positions, his win doesn’t seem completely impossible. The wide-ranging consensus is that the impact of Clinton winning the presidency would have less effect on the market and would return the focus back to the Federal Reserve’s monetary policy as this means the economic and market trends will likely remain the same without any significant changes. Such a case could lead to the same movement we saw back in 2012 when Barack Obama was elected for the second term and we witnessed a dollar weakness.


However, if Trump wins, a change in the ruling party could will lead to policy uncertainty for a while till the new policy is clear and the markets discount the new changes. Such uncertainty can lead to a fly to safe heaven effect for products such as gold and bonds, which can lead to strength in both gold and US Dollar prices but a fall in equity prices.


The US Dollar already had a busy year with mixed fundamental news and reactions to the global political and economic developments both seeming to play a key role in the currency’s strength. Now, all eyes are focused on the presidential election, ignoring the Fed’s decisions as they may change according to election results.


While the Fed is theoretically independent from politics, it remains accountable for the United States Congress, and it will have to reconsider the policy changes on a political level before implementing new measures, which can explain the hold in the Fed policy during recent meetings.


Both parties are promising changes in policy, which can only be considered as elections talk, and traders will have to wait and see if any of these promises will materialize after the elections.


The news mentioned in this outlook are not a guarantee of future market performance and do not represent the view of ICM Capital Limited. Financial markets can move in either direction causing profits to be made or complete losses to be incurred by the trader. Each trader must make a decision on what their risk appetite is and ensure that correct risk management procedures are in place before placing any trades. Also, remember trading CFD's or Spot FX carries a high risk to your capital and can result in losses that exceed your deposits.



Shoaib Abedi is the Director and co-founder of ICM Capital; a UK headquartered company licensed and regulated by the Financial Conduct Authority (FCA) in London, with six offices spread around the world. Shoaib was instrumental in establishing ICM Capital and subsequently headed the business as well as forming the company’s infrastructure from day one. He is widely recognised for his role in shaping the firm’s corporate ethics and for his leadership skills. Throughout his career Shoaib has embraced the principals of compliance, integrity and transparency in trading. Shoaib has expanded the company throughout Europe, the Middle East, North Africa and Asia and has formed a work ethic of trust and transparency that flows throughout the whole corporation.



Your email address will not be published. Required fields are marked *