Even if it's too close to make directional bets, there is still time to hedge risks.

The "too close to call" competition in this U.S. Presidential election means that voter turnout trends could be a decisive factor in determining who wins. In the last election, the turnout rate was around 66.1%, with more than 158 million people voting, leaving around 81 million eligible voters who chose not to cast a ballot. This year, there has already been a surge in early and mail-in voting, with 76 million people submitting their ballots by mail, about half of the total turnout from the previous election, suggesting we’ll see high voter turnout on Election Day.

In Georgia, for example, 4 million people have already voted by mail, which is roughly 80% of the state’s total turnout in 2020. In some states, including Connecticut, Delaware, and South Carolina, mail-in voting has already surpassed total turnout levels from the previous election.

Today, the candidates are making their final campaign efforts, focusing especially on the so-called swing states: Michigan, Wisconsin, Pennsylvania, Nevada, Georgia, North Carolina, and Arizona. These states together represent 93 electoral votes, which could be crucial to securing a victory. In 2016, Trump won all these states except Nevada, while Biden took all but North Carolina in 2020. Given Pennsylvania’s 19 electoral votes, both campaigns see it as essential to winning the presidency. Kamala Harris, representing the Democrats, is focusing on Pennsylvania, holding rallies in key cities like Allentown, Pittsburgh, and Philadelphia.

However, polls indicate that her lead in Pennsylvania has decreased, which has prompted this last-minute push in the state.

Pennsylvania is considered particularly important due to its potential to decide the election. According to estimates, there is about a one-in-three chance that the outcome in Pennsylvania could determine the overall winner. This heightened focus is why both candidates are prioritising it in their final campaign hours.

Recent polling has also suggested a slight shift in traditionally Republican-leaning states like Iowa, where Trump previously won by large margins. For instance, a poll from Ann Selzer shows Harris with a slight lead in Iowa, thanks in part to support from women and independent voters moving toward the Democratic party. Despite Iowa’s relatively low six electoral votes, the results are seen as a potential indicator of shifting voter sentiment.

Trump, on the other hand, is starting his day in North Carolina and plans to visit Pennsylvania and Michigan as well. Over the weekend, he made repeated unproven claims of election fraud in Pennsylvania, a statement the BBC suggests could be aimed at undermining trust in the election process. Trump also addressed potential economic policies, like tariffs on imports worth $3 trillion, which has raised concerns internationally, especially among European leaders who fear such policies could strain their economies.

With these campaign activities wrapping up, attention now shifts to the impact this election will have on the U.S. economy and currency. Here’s a breakdown of how different election outcomes could affect these areas:

Impact on the U.S. Dollar

Economic Policies: If the incoming administration pursues large government spending or cuts taxes, inflation could rise, potentially pushing the Federal Reserve to adjust interest rates. Higher rates might strengthen the dollar, but if inflation rises more quickly than rates, the dollar could weaken.

Stability: Investors see the dollar as a safe-haven currency. Uncertainty from a delayed or contested election could lead to short-term volatility. However, a clear result with stable policies would likely support the dollar.

Trade Policy: Changes in trade policy, particularly with major partners like China or the EU, could also impact the dollar. For example, protectionist measures may temporarily strengthen the dollar by lowering the trade deficit, but could lead to inflation over time, weakening it.

Economic Growth and Employment

Spending and Tax Policies: An administration focused on expanding spending on infrastructure, healthcare, or technology can stimulate economic growth and create jobs, boosting short-term economic performance. However, this may increase national debt. Conversely, a focus on budget cuts could slow growth in certain sectors but improve debt levels.

Regulatory Approaches: Different parties have distinct approaches to industry regulations. For example, reducing regulations could spur growth in areas like energy, finance, or technology. However, stricter regulations might slow growth in some industries, affecting employment and GDP.

Stock Market Reactions

Sector Responses: The stock market reacts differently based on sector-specific policies. Healthcare and energy are particularly sensitive to changes in insurance or energy policy, while markets may respond positively to a business-friendly candidate and with more caution toward regulation-heavy platforms.

Volatility: Elections often lead to heightened market volatility. Disputed or close results can lead to temporary drops in stock prices and weaken the dollar until the outcome becomes clear.

Global Implications

International Relations: The election’s outcome can also impact global economic relations and currency markets. Protectionist policies may reduce global cooperation and disrupt trade, impacting both the U.S. and international economies.

Investor Sentiment: If the winning administration’s policies are seen as stabilizing, foreign investors may continue investing in U.S. assets, strengthening the dollar. However, policies seen as destabilising could lead investors to move assets out of the U.S., potentially weakening the dollar.

In conclusion, the U.S. election could have far-reaching effects on the economy and currency, influenced by the chosen administration’s fiscal, monetary, and trade policies.

With potential for increased volatility, businesses can work to mitigate risks by consulting foreign exchange experts, like those at Central FX, to make informed decisions amidst any shifts in the economic landscape.

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