by George Dorgan
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As the 2024 US presidential election approaches, investors worldwide are closely monitoring potential ramifications on global markets, including the euro.
The outcome of this election could significantly influence currency fluctuations, trade policies, and international relations as Republican candidate Donald Trump seeks to regain the White House from the Democratic party – which has nominated Kamala Harris, current vice president to Joe Biden.
The Current State of Play
The euro has experienced relative stability but remains sensitive to global economic shifts. The European Central Bank (ECB) has been cautious with monetary policy, aiming to balance inflation control with economic growth. Meanwhile, the US economy shows signs of resilience, with the Federal Reserve adjusting policies to manage inflation without stifling growth.
Incumbent President Biden and former President Trump have starkly contrasting policies on trade, taxation, and foreign relations. Depending on which way the American people vote, it could lead to significantly different outcomes for the euro.
What If the Republicans Win?
A Republican victory could herald a return to protectionist trade policies and a focus on deregulation. Donald Trump’s previous administration was marked by tariff implementations and renegotiations of trade agreements. Such moves could strain US-European relations, potentially weakening the euro due to increased economic uncertainty and trade disruptions.
Additionally, Republican policies might include significant tax cuts and reduced government spending on social programmes. These measures could strengthen the US dollar as investors flock to assets perceived as benefiting from deregulation and fiscal conservatism, thereby exerting downward pressure on the euro.
What If the Democrats Win?
If Harris is elected, it is likely that current economic policies will continue, emphasising multilateral cooperation and sustainable growth. The Biden administration has focused on rebuilding alliances and engaging in collaborative approaches to global challenges like climate change.
Democratic policies may support the euro by fostering a stable international trade environment. Initiatives on green energy and technology could open markets for European firms, potentially boosting the eurozone economy. Furthermore, continued stimulus measures to support economic recovery might lead to moderate inflation, affecting currency valuations.
A Split Congress Under Trump Control
Should Donald Trump win the presidency but face a Congress divided between parties, legislative gridlock could become a significant issue. A split Congress might impede the implementation of substantial policy changes, leading to uncertainty in financial markets.
For the euro, this scenario could result in increased volatility. Uncertainty over US fiscal and foreign policy may cause investors to reassess risk, possibly strengthening the euro against the dollar if the latter’s appeal diminishes due to political instability.
Trading Before, During, and After the Election
Currency markets are highly sensitive to political events, and the US presidential election is a catalyst for volatility. Before the election, investors often adjust positions based on polling data and anticipated policy shifts. During the election period, real-time results can cause rapid fluctuations as markets react to potential outcomes. Using a platform that updates in real-time like Tradu can help you navigate this volatility.
To manage these turbulent times, investors should consider diversifying portfolios and employing risk management strategies. Staying informed through reliable news sources and economic analyses is crucial. After the election, understanding the new administration’s policy priorities will be essential for making informed investment decisions.
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