The 2024 United States presidential election will be held on Tuesday 5 November, when voters will elect not only a president, but also Congressional candidates for seats in the House of Representatives and the US Senate.

This year's election started out as a rematch of 2020, but that all changed when President Biden retired from his campaign in July and endorsed his vice president instead. As a result, the race for the White House is between Kamala Harris and Donald Trump. In either case, the winning candidate will become the 47th President of the United States.

Although there are only two nominees in the race, the outcome will not necessarily be binary. A third option could be a contested result. Trump may challenge the election result in 2024 in much the same way he did in 2020.  It is worth noting that a January poll from PRRI found that 66% of Republicans believe the 2020 election was stolen. The Democrats have also contested three Electoral College Certifications in the last 20 years.

Each of these three possible results has the potential to significantly impact global FX markets. 

Potential effects of a Democrats win

Democrats typically favour increased government spending, particularly on social programs and infrastructure. This could lead to higher budget deficits, which might put downward pressure on the USD in the medium to long-term.

Monetary Policy

While the Federal Reserve is independent, a Democratic administration might favour a more dovish monetary policy, which could result in lower interest rates for longer and potentially weaken the USD.

Trade Policy

A Democratic administration may pursue less confrontational trade policies, especially with traditional allies. While this is likely to reduce trade tensions, it could also potentially weaken the USD's safe-haven status.

Regulation 

Increased regulation, particularly in the financial and energy sectors, might dampen short-term economic growth prospects. Although this could initially weaken the USD, the long-term effects would depend on the overall economic impact.

Tax Policy

Potential increases in corporate tax rates could be seen as negative for US economic growth and might put some downward pressure on the USD.

Given the factors above, these are also some potential impacts on major currency pairs:

EUR/USD   

The Euro could strengthen initially, since it may be seen as a counterbalance to a potentially weakening USD. The extent of this strength will probably depend on the Eurozone's economic performance and European Central Bank monetary policy. Given that inflation in the Eurozone has now fallen below the 2% target, the ECB might consider slowing its rate cutting trajectory, which could strengthen the Euro.

GBP/USD 

GBP may see some strength against the USD, but this would be likely due to dollar weakness rather than pound strength. A less confrontational US trade policy might also benefit UK-US trade relations, potentially supporting the GBP.

USD/JPY 

As a traditional alternative safe-haven currency, The Japanese Yen might strengthen against the USD if there is perceived increased economic uncertainty from the US. But if a Democratic win is seen as positive for global trade, it could weaken the Yen's safe-haven appeal. 

USD/CAD 

Although the Canadian Dollar might strengthen against the USD, especially if a Democratic administration is perceived as more favourable to Canadian trade, its performance also depends heavily on oil prices, given Canada's resource-based economy

Potential effects of a Republican win

Fiscal Policy 

Republicans typically favour lower taxes and reduced government spending. Such policies could lead to smaller budget deficits and potentially strengthen the USD.

Monetary Policy 

Although the Federal Reserve is independent, broader economic policies can still impact central banks. Traditional Republican administrations have favoured policies that could lead to a more hawkish monetary policy, which could result in higher interest rates, potentially strengthening the USD.

Trade Policy

A Republican administration may pursue more protectionist trade policies, increasing trade tensions, but potentially strengthening the USD as a safe-haven currency.

Regulation

Decreased regulation, particularly in the financial and energy sectors, might boost short-term economic growth prospects, which could also strengthen the USD.

Tax Policy

Potential decreases in corporate tax rates could be seen as positive for US economic growth and might put some upward pressure on the USD.

Given these factors, here are some potential impacts on major currency pairs:

EUR/USD

The Euro is likely to weaken initially if the USD strengthen on expectations of pro-growth policies. The extent of this weakness would depend on the Eurozone's economic performance and ECB policy.

GBP/USD

Sterling may see some weakness against the USD, although this would be heavily influenced by ongoing UK-specific factors. A more protectionist US trade policy might create uncertainty in UK-US trade relations, potentially pressuring the GBP.

USD/JPY

The Japanese Yen might weaken against the USD if there's perceived increased global economic growth, but if a Republican win is seen as increasing global trade tensions, it could strengthen the Yen's safe-haven appeal.

USD/CAD

The Canadian Dollar might weaken against the USD, especially if a Republican administration pursues policies that could impact Canadian trade, although this would be dependent on oil prices and energy policies.

Emerging market currencies

If a Republican administration follows its traditional, more protectionist trade policies, emerging market currencies might weaken against the USD. Higher US interest rates could also decrease the appeal of higher-yielding emerging market currencies.

A contested result

Whatever the election results, they are likely to be contested. 

• Potential for USD fluctuations, which could benefit exporters if the USD weakens but challenge importers due to higher costs of imported goods and services. Conversely, a stronger USD could benefit importers but make exports less competitive.
• Increased need for hedging strategies for businesses with significant USD income or costs, to manage potential currency fluctuations and protect profit margins. Consider reviewing and potentially adjusting hedging strategies, as well as increasing hedge ratios for near-term exposures.
• Possible increased volatility in major currency pairs like EUR/USD, GBP/USD, and USD/JPY, requiring businesses to stay agile and informed about market movements.
• Close monitoring of trade policies and regulatory changes, as these could impact supply chains, international operations, and overall business strategy. Assess supply chain vulnerabilities to potential policy changes and review investment plans in light of potential regulatory shifts.
• Liquidity planning, ensuring sufficient liquidity buffers to manage potential volatility. Review credit lines and consider securing additional facilities if needed.
• Access to banknote/wholesale currency considerations, especially for those with significant USD exposure. This might present opportunities for those looking to convert USD to other currencies, although timing and risk management would be crucial.