Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
With the drama surrounding the US election now dying down, world markets are settling into a more established rhythm. Equity has generally improved, and cryptocurrencies appear to be on the verge of a bull run.
The US Dollar, on the other hand, has been more or less falling in value. There is not enough data on this matter to suggest why or what the immediate future will look like, but it is worth examining. What would a Biden presidency mean for the Forex market?
The U.S. Dollar Falls Following Biden Announcement
The week following the election results has started in modest fashion for the US dollar. The consensus is that further federal easing policies, a steadier presidency, and COVID-19 infection rates have resulted in cautious expectations. Most other currencies, including the Chinese Yuan and Australian Dollar, have performed better.
Biden is entering a divided country and government. Tensions are high in the US as the nation sees its third wave of COVID-19 infections. Although the president-elect has announced a task force for the same, it will be a monumental task to get the situation under control.
Analysts from many of the top brokers for forex trading have projected a rough 2021. This is because of both the pandemic and the unlikeliness of taxation and fiscal policies to be passed with a divided congress. Consequently, it will be the US Federal Reserve that intervenes to mitigate economic damage. These analysts have also noted that the United States’ fiscal deficit will not see much improvement.
One outcome most investors agree upon is that there will be short-term volatility. The dollar had been slipping until the election, before spiking and reaching a plateau. November, on the whole, has been a very volatile time so far, and there are weeks left to go. And with US Forex regulation being intensely speculative, this matters.
The Future of the Forex Market with Biden
The long-term view is that the dollar could gain, though this would have adverse effects on profit margins. This is largely because the US is one of the largest exporters of raw materials, with 7.72% of the world’s export product share.
No tax hikes, quantitative easing policies, and no conclusive end to the trade war are what primarily concern investors. However, the dollar is unlikely to be devalued to an extreme degree, with the fiscal policies being limited in nature. Analysts believe that Biden’s policies will focus on steadying the economy, as opposed to making radical changes.
Whatever the outcome, the dollar value will certainly have an enormous impact on other currencies. The Bank of Japan is closely examining the dollar/yen pair — Japan’s economy has been battered by the pandemic. Though COVID has wrought havoc on markets, it has boosted Forex trading.
In a bid to better relations with other countries, a Biden presidency could also result in fewer tariffs. Nathan Sheets, of PGIM Fixed Income, said that there would be “nuance” in how the dollar moves going forward.
The short and long of it is that the dollar is a middle state — the first two quarters of 2021 are going to offer us a clearer picture. Some stock sectors also look optimistic under Biden, but what we can expect, for now, is short-term volatility.
The dollar’s value in 2021 will be down to how the US Federal Reserve approaches its handling of the economy. President-elect Biden’s administration will not have a very immediate impact on the economy. However, the early months of his presidency will give some sign of where the dollar stands.
Successful forex investing will be reliant on keeping a close eye on the markets going forward. The outlook should be apparent as the Biden administration offers a more detailed perspective on its agenda. Similarly, investors should pay attention to the Federal Reserve’s decisions.
Where do you see the US Dollar in the months to come? What impact will Biden’s presidency have? Let us know in the comments below.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.