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US Dollar Fundamental Forecast: Bullish
- The lead up to the presidential election on November 3 may exacerbate market volatility.
- Climbing coronavirus cases and tightening restrictions are likely to fuel haven inflows.
- Federal Reserve monetary policy meeting may leave investors disappointed.
Presidential Election to Fuel Volatility
The run-in to the US presidential election on November 3 will likely stoke volatility up until the point that a winner is announced, with the build-up of uncertainty probably intensifying haven inflows and in turn buoying the anti-risk US Dollar[2] in the interim.
Although Democratic nominee Joe Biden is holding a significant lead over President Donald Trump in the national polls, the spread has notably narrowed in recent days with the rate of change favoring the Republican incumbent.
That being said, the former Vice President looks to be in a much stronger position than Democratic challenger Hillary Clinton was in 2016 and is leading in key swing states such as Florida, Pennsylvania, Michigan, Wisconsin and Arizona.
Source – RealClearPolitics
Moreover, the recent correction seen in US benchmark equity indices could be reflective of a market pricing in a Biden presidency[3], given the historical relationship[4] seen between the performance of the S&P 500[5] in the three months preceding the election and the ultimate winner of the White House.
In the 8 times that stock returns were negative three months before the election, the incumbent party lost 88.89% of the time, while the President remained in office in 84.62% of the 13 occurrences when average returns were positive.
As it stands, the S&P 500 and Dow Jones Industrial Average[6] are signaling a possible change in leadership come
