Friday, 4 November 2016

How could the US election affect exchange rates?

Next week, the most important thing for the currency markets will be the US election. Americans go to the polls on Tuesday, with a result expected early on Wednesday morning UK time (5am or so) unless it’s very close, in which case we may not know until Thursday or beyond.

It’s a very important event for exchange rates, as the result could affect not just GBP/USD rates, but also GBP/EUR rates and other currency pairs.

When will we know the result?


Voting will happen on Tuesday, but due to the time zones in the USA, little by way exit polling information will be released while the final outcome is still in the balance, to avoid influencing how people vote in the West. The result will depend on key swing states such as Florida, and if we see a decisive victory for Clinton there it could all be over very quickly.

However if the results are very close, or Trump loses by a very small margin and mounts some kind of challenge, then things could drag on for a few days. (In the 2000 elections nothing was settled for over a month due to disputed results between Bush and Gore in Florida.) 

How could it affect exchange rates?


It has huge implications not just for GBP/USD rates, but also GBP/EUR and other currency pairs. For example if Trump wins the election, the markets will likely see this as Dollar negative, and start selling the US Currency. If this happens the Dollar will weaken and the Euro will strengthen pulling GBP/EUR rates much lower. If Clinton wins, then the opposite would hold true. Market positioning ahead of the result on the basis of polls will also have an effect.

Turbulent trading conditions expected 


We are expecting and extremely volatile week for trading and disrupted trading conditions, much as we saw during the UK EU referendum due to this event. If you have a currency transfer to make this week, I would strongly suggest getting in touch with us as soon as possible to discuss your requirements in detail and ensure you have the right protection in place to ensure you’re not caught out by market movements caused by the election. Click here or complete the form below to send a free enquiry.