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Monday, December 6, 2021

How Biden’s presidency could impact the dollar 

The last few months have been something of a rollercoaster for the dollar, the stock markets, and even commodities. The pandemic, the Presidential Elections, and the fall out of the disputed result resonated, causing high levels of uncertainty both domestically and abroad. 

But this uncertainty and, indeed, volatility saw a surge in the number of individuals wanting to buy and sell forex. Fluctuating values and the depreciation of the GBP and EUR against the USD provided good opportunities for shrewd investors. But, as the political and social situation somewhat stabilized, the dollar has been performing in a way that wasn’t expected. As a safe-haven currency, it remains to be seen how it will perform in the long run under Biden; but let’s see some of the possibilities. 

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Possibilities for a positive impact 

There are a number of potentially positive outcomes on the value of the dollar due to Biden’s presidency. Firstly, contrary to what many analysts predicted; the dollar is trading well at the start of his term. This could be due to a number of factors - mainly that his inauguration brought stability to a somewhat complex and tumultuous few months. Furthermore, his repealing of a number of policies in combination with swift action on a number of matters, renewed investor confidence both nationally and internationally. 

Biden also announced a number of plans to increase manufacturing output which is good news for supply chain stakeholders.  

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The stimulus package and tax breaks are also expected to free up money and give the economy a much-needed boost. In addition to this, Biden’s stance on the COVID-19 pandemic is expected to start yielding results in the next couple of weeks, which could bring things back under control. 

Furthermore, history shows that a Democratic government in the White House is usually beneficial for the dollar. A study by SEB said that a victory from Biden would be the “best possible outcome” for the dollar and the US economy. 

Possibilities for a negative impact 

On the other hand, a number of analysts have said they think that the dollar could weaken under a Democrat government. While control of the Senate and House means he can push through policies with little issue, this could impact the value of the dollar. Many of his policies will include high levels of spending, as well as tax reliefs for the middle classes. Higher taxes for the wealthy could see investor confidence falter.  

Other policies like focussing on clean energy, R&D, and a comprehensive stimulus package could risk raising the federal deficit even more. Having reached a historic high in 2020 of $3.1 trillion, this could significantly impact the performance of the dollar. 

Lastly, Biden has not spoken much about his opinion or plan for the performance of the dollar. Trump was in favor of a weak dollar in the hopes of boosting trade. But this silence has led to uncertainty and cynicism from investors who aren’t confident he can keep interest rates near zero for long. 

From a negative perspective, the Biden administration has a less confrontational stance towards trade and international trading partners. This means that other currencies like the EUR, GBP, Yen, and Yuan could all benefit, but it may not be such good news for the USD. 

But, at this stage, it’s all just speculation. We need to let the dust of the last few months settle before being able to get a grasp on what will happen. Either way, the coming months will be an interesting time for Americans, traders, and the rest of the world. 

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