In less than a week it will become clear who will really be cut out to fight Donald Trump for the American presidency later on this year. The outcome of that battle will have a major impact on the price movement of the dollar.
Anyone who follows the political news a little would almost think that the battle within the Democratic Party is already raging in full force. The ballots in the various states and the TV debates – like that of 19 February in Las Vegas – are just preliminary rounds. The actual battle will not start until Tuesday, 3 March. On what is called “Super Tuesday” pre-elections will be held in no fewer than fourteen states. It is historically proven that a candidate who gets a lot of votes on this day has a very good chance of ultimately winning the elections. This year Super Tuesday will be more exciting than ever. This is partly because Michael Bloomberg will be taking part. The billionaire will stake everything he has on this day, having passed up all previous primaries.
On 3 March we will know more
Four years ago, Hillary Clinton and Donald Trump were the big winners on Super Tuesday. Of course, it took months before they finally received their definitive nomination as presidential candidates. This year, things won’t be any different as there is no real favourite. Up until he was clearly defeated by Bernie Sanders and Pete Buttigieg at the first primary elections a few weeks ago this was former Vice President Joe Biden. It seems as if newcomer Bloomberg will soon be fishing in the same pond as Biden, while Elizabeth Warren may have thrown herself out of the running through her aggressive proposals for dealing with business and banking.
What if a Democrat wins?
How the dollar will react to a Democratic victory depends entirely on which candidate will be nominated. The currency may receive quite a blow in the unexpected event that Warren were to emerge the victor. She makes a strong case for giving the domestic industry a boost by influencing the exchange rate of the dollar. On the other side, Biden and Bloomberg are strong advocates of free trade. In the event of a victory for these candidates, financial markets will not have to worry so much about all sorts of trade disputes – or about crazy fluctuations regarding the stability of the dollar.
What if Trump wins?
If there is anything Trump wants it is a weak dollar. This is because a cheap currency strengthens the international competitive position of American businesses. Initially, this approach was successful: in 2017, the dollar took a significant step backwards against other currencies. This changed when Trump attempted to defend the interests of the United States by stirring up the trade conflict with China. Due to all the uncertainty, more and more parties placed their confidence in the safety of the dollar. Since the beginning of 2018, the value of this currency has risen to the extent that it has become worth almost 10% more in euros. If Trump wins, the political uncertainty will persist, thus causing the dollar to continue rising. And let this be exactly what Trump would rather not want.
Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the forex world. This column reflects his personal opinion and is not intended as professional investment advice.