Regardless of the outcomes, the election is already creating ripples in the global markets, making it essential for traders to stay ahead. This article will explore four key areas likely to be affected by the elections:
→ Diplomacy and trade.
→ Fiscal and tax policies.
→ Market sentiment.
→ Monetary policy.
Most importantly, this article will examine how these areas could influence gold, the US dollar, and other major instruments.
Diplomacy and trade: Reconciliation or breakdown?
Trade policy will be one of the most closely watched areas, particularly the ongoing economic tensions between the US and China. Depending on the election outcome, this relationship could either stabilize or deteriorate. If Donald Trump is re-elected, we’ll likely see an increase in tariffs on Chinese imports, which may lead to a slightly lower trade deficit in the USA.
On the other hand, a victory by Kamala Harris wouldn’t likely have much of an impact on trade. Gold, as a safe haven, could benefit from disruption to trade under Trump but could also perform well under Harris if economic policies boost investor confidence.
Fiscal policy: More spending and debt, but how much?
Regardless of who wins the presidency, government spending is expected to increase, but with a different approach from each. US national debt recently hit a record $34.5 trillion, and both candidates have plans that could see it rise further.
If Trump wins, we can expect some tax cuts, and his administration will adopt conservative spending. In contrast, Harris is likely to push for increased government spending, particularly on social programs, but is unlikely to cut taxes meaningfully.
In either case, the debt ceiling will likely be extended again next year without much opposition, and
the debt will keep rising. However, the confidence in the markets will likely hold strong.
Monetary policy: Can the new government pressure the Fed on rates?
The simple answer is ‘no’. While fiscal policy is directly tied to the government, monetary policy remains the domain of the Federal Reserve. In 2018 and 2019, for example, Trump repeatedly argued that rates were too high, but his opinion had little effect on the overall trajectory of the policy or decision-making. Driven primarily by inflation and economic conditions rather than political pressures, the Fed is expected to continue lowering interest rates, irrespective of who wins the election.
According to data from the CME FedWatch Tool, traders’ expectations for upcoming rate cuts have shifted dramatically. While the election may influence fiscal policies, monetary policy will remain largely insulated unless extreme government measures are introduced. There are two critical points here for traders:
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A total of five or more cuts this year now seems unfavorable.
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This is almost entirely separate from politics unless the next government introduces extreme policies that influence inflation.
That’s why traders can’t afford to discount the context of economic data and expectations for monetary loosening, even during the election period. Let’s look at the key instruments most likely to be affected during this period:
US dollar (USD)
While elections can influence the currency market, the Fed’s actions will more likely continue to drive movements in the US dollar. Traders will need to focus on inflation and employment data, which will have more influence on the dollar than the election outcome itself.
Stocks
Under a Harris administration, industries like technology and healthcare could face increased regulation, while Trump’s policies may be more favorable for tax cuts and trade policies. However, the uncertainty surrounding trade wars and potential new tariffs could weigh on the stock market if Trump is re-elected.
This uncertainty can create market volatility—particularly in indices like the Dow Jones (US30), S&P 500 (US500), and Nasdaq (USTEC). In response to rising market interest in these indices, Exness has reduced spreads by 67%, providing traders with even tighter conditions during high-volatility events. Lower spreads, especially during crucial market movements, can significantly impact trading costs and increase potential profitability during such unpredictable periods.
Oil (USOIL)
While green energy under a Harris administration is gaining traction, it is unlikely to impact oil prices long term. Instead, oil traders should focus on shifts in US demand and global supply chain dynamics.
Gold has been in a relatively consistent and robust uptrend since the same period last year, supported by uncertainty around monetary policy and global risks. A trend reversal seems unlikely for now, but momentum might slow down based on fundamentals.
Historically, gold tends to perform better under Democratic presidents, though this correlation isn’t absolute. A Harris win could push gold higher as a safe haven, while Trump’s re-election may lead to consolidation or a correction. However, traders should prepare for volatility in either scenario.
Gold’s appeal increases in times of uncertainty, and with Exness recently reducing its gold CFD spreads by 20%, traders can capitalize on these shifts with lower trading costs. Tight spreads and fast execution are especially critical when volatility spikes during events like the US elections.
All in all, market sentiment can shift quickly based on election developments. A smooth transition of power or a contentious result could dramatically sway investor confidence, leading to sharp movements in equities, currencies, and commodities. The key for traders is to stay flexible and prepared, monitoring political headlines and economic data.
While the outcome of the US elections is uncertain, understanding the broader economic context is key to navigating this critical period. By focusing on major areas like trade, fiscal policies, and market sentiment, traders can better anticipate potential movements in key instruments like gold, the US dollar, and equities. With the right preparation and a trusted trading partner like Exness, one of the world’s largest retail brokers, traders can face the volatility of the US election period with greater confidence.
This post was originally published on here
