U.S. Election Implications for Global Currencies | Lord Abbett
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Economic Insights

How might the 2020 vote affect the U.S. dollar and other major currencies?

Read time: 1 minute

While there was no definitive result of the U.S. presidential election as of midday on November 4, financial markets appeared to be anticipating the high probability of a split outcome– with Democratic candidate Joseph Biden taking the Presidency and the Senate staying Republican. There is certainly still a possibility for President Donald Trump to win but the U.S. Treasury market is pricing out the large fiscal stimulus package that would be expected under a so-called “blue wave” (a Democratic sweep of the White House and both houses of Congress) as yields fell and the Treasury curve flattened.

Risk assets appeared to be interpreting these developments as positive. Indeed, if the now-expected split outcome – or even if Trump ends up winning – we think the environment should be positive for credit and for equities, as there will be less chance of higher corporate taxes and increased regulation. 

The impact on the U.S. dollar appears to be mixed. In early trading on November 4, the greenback was appreciating relative to other developed market currencies such as the euro and pound but selling off versus some emerging market (EM) currencies, based on Bloomberg data.  A Biden presidency could potentially mean less aggressive policies towards China, which could also benefit EM currencies. Also, falling Treasury yields have historically been positive for flows into emerging markets whose yield advantage becomes even more attractive.

In our view, the worst-case scenario for markets from here would be a contested outcome for the Presidential race, or one that remains undecided for much longer. We will continue to monitor the U.S. election situation as it unfolds and provide updates as warranted.

 

A Note about Risk: The value of an investment in fixed-income securities will change as interest rates fluctuate and in response to market movements. As interest rates fall, the prices of debt securities tend to rise. As rates rise, prices tend to fall. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. Investing in international denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. The securities markets of emerging countries tend to be less liquid, especially subject to greater price volatility, have a smaller market capitalization, have less government regulation and may not be subject to as extensive and frequent accounting, financial and other reporting requirements as securities issued in more developed countries.

The information provided is for general informational purposes only. References to any specific securities, sectors or investment themes are for illustrative purposes only and should not be considered an individualized recommendation or personalized investment advice and should not be used as the basis for any investment decision. This is not a representation of any securities Lord Abbett purchased or would have purchased or that an investment in any securities of such issuers would be profitable. Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that markets will perform in a similar manner under similar conditions in the future.

Past performance is not a reliable indicator of future results.

This commentary may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.

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