The Impact of the 2024 U.S. Presidential Election on the U.S. Dollar: Harris vs. Trump

By

Elizabeth Morgan

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Presidential race

Table of Contents

Introduction

As the 2024 U.S. presidential election approaches, global attention is turning to the potential economic outcomes that could follow. The race, featuring candidates Kamala Harris and Donald Trump, is already having profound effects on economic forecasts and investor sentiment. One key element at the center of these discussions is the future of the U.S. dollar (USD). How could the election of either Harris or Trump impact the USD, and by extension, the global forex market? This essay examines these potential scenarios, exploring how each candidate’s policies could shape the USD’s standing in relation to other currencies and what investors might expect in the aftermath of the 2024 election.

Overview of Potential Economic Policies and Market Reactions

Both Kamala Harris and Donald Trump represent significantly different economic ideologies, each likely to influence the U.S. dollar in unique ways. Harris, running on a platform that emphasizes social spending, environmental reform, and potential tax increases for corporations and the wealthy, may aim to reinforce social support systems and invest in sustainable infrastructure. Trump’s platform, in contrast, focuses on tax cuts, deregulation, and a continuation of the America-first trade stance. While both candidates’ strategies target economic growth, the direct and indirect effects of their approaches on the USD could differ widely, making it crucial for investors and currency traders to understand

these dynamics.

presidential election

Examining the Harris and Trump USD Impact Scenarios

1. The Kamala Harris Effect on the U.S. Dollar and Forex Market

Kamala Harris’s economic policies would likely lead to increased federal spending aimed at addressing socioeconomic gaps, advancing green energy, and improving healthcare access. Such spending could result in higher government borrowing and, by extension, an increase in national debt. A rise in debt levels may make the U.S. dollar less attractive to investors if they perceive it as risking inflation or reducing the USD’s purchasing power. Consequently, the USD might face downward pressure in forex markets, particularly if international investors turn to other currencies or assets to hedge against inflation concerns.

In a Harris presidency, the USD’s relationship with emerging-market currencies could become more volatile, as capital outflows from the U.S. might flow into these markets seeking higher returns. However, major currencies like the euro and yen could strengthen against the dollar, as investors perceive the potential fiscal stimulus as a factor that could weaken the USD. Harris’s stance on environmental and trade regulations could also play a role, particularly if trade restrictions are lifted to encourage more sustainable practices, potentially boosting the euro and yen.

2. The Donald Trump Effect on the U.S. Dollar and Forex Market

 Trump’s economic platform, often focused on reducing taxes and easing regulations, could impact the USD differently. Trump’s approach might instill confidence among business owners and investors who favor deregulation and lower corporate taxes, leading to an initial boost in the USD as corporate profits potentially increase and encourage greater capital inflows.

 However, Trump’s America-first trade policies could also introduce volatility. Tariffs on imported goods and trade restrictions might lead to strained relationships with major U.S. trade partners, potentially creating uncertainty around the USD. If other countries impose retaliatory tariffs, the USD might initially strengthen as global investors seek U.S. assets as a safe haven. Still, over time, protectionist policies could disrupt global supply chains and reduce trade flows, ultimately putting downward pressure on the USD if investors see prolonged trade instability.

The Chinese yuan and the euro could be particularly affected by Trump’s approach. While the yuan might face direct pressures from tariffs, the euro might experience a lift if investors look to Europe as a more stable alternative to U.S. assets. This could potentially lead to the USD weakening against the euro and other stable currencies.

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Impact on the Forex Market and Other Currencies

The 2024 election, regardless of its outcome, is expected to have substantial effects on the forex market, where the USD remains a leading reserve currency. Any volatility in the USD resulting from the election outcome will likely affect other currencies as well. For instance:

– Euro (EUR): As the European Union continues its recovery from economic challenges, a weakened USD from increased U.S. spending (under Harris) or potential trade disruptions (under Trump) could strengthen the EUR against the USD. The euro could become more attractive as a safe-haven currency, especially if European fiscal policies remain stable.

– Japanese Yen (JPY): The yen, traditionally a stable asset, might also benefit if the USD weakens. Investors may view the yen as a secure investment if U.S. economic policies lead to inflationary pressures or trade instability. This effect could be more pronounced in a Harris presidency if higher government spending raises inflation expectations.

– Chinese Yuan (CNY): The yuan would likely experience direct impacts, particularly under Trump, given his historical stance on tariffs. Further trade tensions could pressure the yuan, causing the Chinese government to implement measures to stabilize its currency. Conversely, if trade relations improve under Harris, the yuan might see a boost as trade volumes between the two countries increase.

– Emerging Market Currencies: Many emerging-market currencies could face heightened volatility as capital flows shift in response to the USD’s strength or weakness. A weakened USD could benefit emerging-market currencies by making their exports more competitive globally. However, if global inflation rises due to increased U.S. spending under Harris, these currencies might face depreciation pressures as countries struggle to manage inflation and debt.

Conclusion: What Can Investors Expect from the 2024 Election’s Impact on the USD?

The 2024 U.S. presidential election presents two distinct economic visions, each with potential ripple effects on the USD and, by extension, the forex market. A Harris administration might lead to increased fiscal spending and a focus on sustainable policies, which could weaken the dollar if inflation concerns grow. On the other hand, a Trump presidency could see initial USD strength from pro-business policies but potential volatility from protectionist trade stances and retaliatory tariffs.

For forex traders, the key will be monitoring policy developments closely and assessing how fiscal and trade measures impact inflation, government debt, and global economic relationships. While a strong or weak USD will have varying implications depending on each candidate’s approach, the 2024 election is a significant event that will likely shape currency markets in ways that extend well beyond U.S. borders.

As investors watch the U.S. election unfold, understanding each candidate’s approach to economic policy will be critical to navigating the complex landscape of currency trading. Regardless of the outcome, this election’s impact on the USD will serve as a bellwether for global economic trends, influencing everything from forex market stability to investor confidence worldwide.

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