Will the US dollar collapse if Biden wins the election?


The US dollar experiences the strongest volatility on the day of the US presidential election, which is not surprising as it is the key currency that initially mirrors any political change. In view of this, experts are uncertain how much Biden's victory will affect the dollar's dynamics.

Analysts from MUFG say that the so-called "blue wave" scenario will become the most unfavorable result of the electrons for the US dollar. Considering this happens, the Democrats will be in control of the key departments – the Senate, the House of Representatives and the White House. They believe that this will give many people hope for further serious financial aid and increased fiscal stimulus. Moreover, their victory will provide significant support for risky assets and significantly weaken the dollar. In the event of a different result, that is, Donald Trump will be re-elected, the US currency will be in an upturn again.

However, there is another opinion. It says that the US dollar's further dynamics does not rely on the US presidential election. According to Federico Garcia Zamora, head of emerging market debt at BNY Mellon Investment Management, whoever wins the election, either Mr. Biden or Mr. Trump will not have a decisive effect on the dollar. Regardless of the election results, the expert recommends reducing or hedging investments denominated in USD. At the same time, he does not exclude that the victory of Joe Biden will cause the dollar to rapidly decline. In contrast, D. Trump remaining in his post will temporarily keep the dollar from declining, but it is unlikely to slow down its decline for a long time. Thus, experts believe that the re-election of the current president will further stimulate the economy.

At the same time, many analysts are confident that the USD will depreciate in the long term, which will be primarily due to economic reasons, not politics. At the moment, it is actively defending its dominant position. This significantly affects the dynamics of the EUR/USD pair. On the first day of this crucial week, the pair approached the lows recorded since September 2020. Experts do not rule out the possibility of the EUR/USD pair moving below the level of 1.1600 even before the summarization of election results. Today, the EUR/USD pair was trading near 1.1654-1.1655, trying to leave this range. If it declines below the level of 1.1500, it should hold this line as long as possible, since breaking through which threatens the long-term rise of the EUR/USD pair.

Experts also admit that if Mr. Biden wins, the US dollar will probably be pushed further below. If this happens, the indicated currency should do its best to survive negative consequences. However, there are only slight chances that there will be an additional impulse that can support the strength of the USD which can lead it upwards.

The material has been provided by InstaForex Company - www.instaforex.com
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