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US Election – what now?

Dollar
Dollar

“The polls are proving wrong again, comments Giles Coghlan. They predicted an overwhelming Joe Biden victory, but the outcome of the US Presidential election is currently on a knife edge. The election race will come down to key battleground states like Georgia, Michigan, Pennsylvania, and Wisconsin. This US election could end up being contested and the result may take days, or even weeks, to be finally confirmed.

Either election result was bound to send shockwaves through the financial markets. It’s clear that even if Biden ends up winning over half of the electors, the Trump will not immediately concede defeat. Postal votes still need to be tallied up and this is already generating a lot of controversy.

“Prior to the US election President Trump has previously refused to state whether he will accept the outcome of the election and has already hinted that the result might need to be settled by the Supreme Court. Given the civil unrest on display in the lead-up to the election, the outside fear is that this action will lead to mass protests.

“As we are already seeing this morning, the Dow Jones and US Dollar will be in a volatile state until there is a clear outcome that both parties will accept. US stocks are selling off on the uncertainty, reversing the gains expected from a Biden victory as projected by the polls. This will also have significant ramifications on the performance of other major currencies and assets. So long as the uncertainty remains, I’m expecting investors to sell global equities, and their holdings in currencies like the Euro and US Dollar. At the same time, we should see inflows into the Japanese Yen.

“In the long-term, there are reasons to be optimistic. Regardless of who is the next US President, the coming US stimulus bill should lift US stocks, once we have a winner confirmed.  Furthermore, over the medium term, even if gold sinks a little lower on a firmer US Dollar, the price of this safe haven asset should still rise in the coming months and into 2021. Low interest rates are projected to remain unchanged for the next three years by the Federal Reserve, and the large quantitative easing program will support the longer-term appeal of gold.”

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