Investing.com — Significant changes in US politics have recently overtaken the influence of the Federal Reserve (Fed) on the USD, leading to unexpected market shifts. Analysts at Macquarie note that recent political developments and increased odds in favor of Donald Trump have accelerated the market’s anticipation of the upcoming US Presidential election on November 5th.
As a result, any potential Fed-induced weakness in the USD is now expected to be brief and shallow, particularly impacting rate-sensitive pairs like . Analysts predict a drop to 142 by December for this pair. Broad-based USD strength is also anticipated, particularly affecting currencies and economies vulnerable to a potential Trump presidency, such as the Chinese Yuan (CNY) and the Taiwanese Dollar (TWD).
Election Scenarios and FX Forecasts:
- Democrat Victory: A Democrat win could result in mild USD weakness driven by Fed rate cuts, with previous FX forecasts mostly remaining valid.
- Trump Victory: A Trump victory could significantly impact FX markets, with potential depreciation of the CNY and other repercussions on global currencies.
Other FX themes to watch include the Australian Dollar (AUD) and the Euro (EUR), which may see fluctuations based on economic and political developments. The GBP, CAD, and NZD are also expected to experience shifts in value based on central bank policies and global market conditions.
Latin America:
- CLP: Chile’s Peso (CLP) is expected to remain strong due to its role in the energy transition.
- MXN: Mexico’s Peso (MXN) is predicted to perform well regardless of the US election outcome.
- BRL and COP: The Brazilian Real (BRL) and Colombian Peso (COP) may face challenges in the second half of 2024 due to fiscal concerns.
Overall, investors should closely monitor political developments, central bank policies, and global market trends to make informed decisions in the ever-changing landscape of the foreign exchange market.