Mid-terms - Impact on the US Dollar
Mid-term election voting is underway, with Democrats and Republicans fighting for control of both Houses of Congress.
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The mid-term elections are causing some volatility for the US dollar. In less than a week, we have seen USD/EUR drop by 3%. Buying €250,000 is now $8,000 more expensive.
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Once the election is over, it may settle the markets; however, the outcome could have a more reaching effect. If the Democrats lose control of the House, Senate, or both, policy-making and law-making could become more complicated. It would mean that despite Biden being President, his powers would be limited while he was still in office. Rumours have also surfaced that should the House and Senate both go to the Republicans, they may start impeachment proceedings against Biden and Harris.
It could also put political pressure on the Fed, which alongside inflationary pressures, would result in a negative dollar environment.
A clean sweep of blue across the board would be positive for the US dollar. If Democrats can hold both the White House and Congress, this could lead to higher public spending, which would revive growth and be supportive for the dollar.
A halfway house would be for Democrats to lose the House but hold on to the Senate. Biden would be sidelined, and international areas such as trade would come to the forefront, driving a stronger dollar.
There appears to be a good chance the Republicans will take back control of the House of Representatives. Unfortunately, many feel that the system cannot be trusted due to the fallout from the last election and Trump casting credibility on the election system itself. It will be interesting to see how this plays out and whether, in 2 years, Donald Trump can make a comeback.
Aside from the mid-terms, the US inflation numbers due out on Thursday remain the biggest risk event for the pair and could have a knock-on effect on the Fed's interest rate decision in December.
It seems the dollar could be in for a volatile time. We recommend customers speak to us sooner rather than later. We can help them to keep on top of any breaking news and economic data that could impact the cost of buying or selling US Dollars.