Markets

What Biden would mean for the dollar

A.n the international financial markets, no event is expected so much later in the year as the election of the American president on November 3rd. On Wednesday night, the two candidates Donald Trump and Joe Biden meet for the first time in one of three major television duels.

And these three debates are already in the calendars of investment experts in a row with the meetings of the major central banks or the next G20 summit. The largest German fund company DWS speaks of the most important elections since 1980 – when Ronald Reagan became President in Washington.

Many analysts from the major financial houses come to a similar conclusion: Both Biden and Trump would set up major economic programs after the election to get the corona-damaged economy going again. Trump is likely to push for tax cuts in particular. Joe Biden, on the other hand, has put higher government spending – financed by higher taxes for companies and wealthy private individuals – in the foreground of his campaign, as Alexander Buhrow from DZ-Bank sums up.

In the trade conflict with China, both candidates are betting on hardship. As president, Biden is also likely to put pressure on China. After all, Biden has also not promised an urgent repayment of the punitive tariffs against Beijing. The democrat is likely to rely more heavily on cooperation with western partners. Overall, Biden will be more conciliatory to Europe than Trump, says Buhrow.

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David Zahn of the investment company Franklin Templeton sees two main uncertainties for the markets in a Biden presidency. “There are general concerns about tax increases, and the uncertainty surrounding future tax policy will be felt in markets around the world,” he says. “Deregulation is also an issue. There was a strong surge in deregulation under Trump. If there are stricter rules, this could create hurdles for many companies. “

How much power does the president get?

From the perspective of the stock exchange, however, even more important than the question of who will be the new president is how complicated the political balance of power in Washington will be after November 3rd. The chief economist of Deutsche Bank, David Folkerts-Landau, warns that the election result may not yet be certain by the planned inauguration of the president on January 20 – and that the Americans could sink into chaotic constitutional discussions by then.

Finally, it is becoming apparent that an extremely large number of Americans wanted to cast their votes by postal vote. And Trump has already announced several times that he will not just accept good postal voting results for Biden. From Folkerts-Landau’s point of view, only a very clear victory by one of the two candidates can prevent long arguments.

But the presidency itself is only part of the game; Another decisive factor for the actual power of the first man in the state is who is in charge of Congress. “In our main scenario, we see a probability of 60 percent that Biden will become president and 42 percent that the Democrats will win both the presidency and both chambers of Congress,” writes Johannes Müller from DWS. “This means that the divided government remains the most likely outcome from our point of view.” Other analysts see much lower probabilities for such a march through.

The choice as the driver of the dollar rate

From the perspective of the Swiss investment bank Credit Suisse, the distribution of power in Congress could even have greater consequences than the decision for the President. After all, both candidates have the goal of getting the economy going again. But both could only do that if they also had the support of Congress.

A divided Washington will lead to a standstill, warns Folkerts-Landau from Deutsche Bank. The election result could be of particular importance for the further development of the dollar exchange rate. The Deutsche Bank experts are expecting a euro-dollar exchange rate of 1.20 by the end of this year, and even 1.30 by the end of 2022. If Biden wins the election and can implement his economic stimulus program, which is heavily geared towards poorer Americans, that could weaken the dollar even more quickly, according to Folkerts-Landau.

Beyond the noise of the election campaign

Regardless of the power of the new president, the clamor of the election campaign is one thing, but what is ultimately translated into real politics is another. The economic situation should also force Biden to move away from demands such as a drastic increase in corporate tax or a doubling of the minimum wage, says expert Buhrow from DZ-Bank. Even in today’s television debate, the markets are hoping for more clarity about the actual program than in the pre-election campaigns.

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