US election guide for the FX market

G10: The interplay of the domestic, foreign and trade policy channels of the next US administration will be key. Loose fiscal, tight monetary and protectionist policies are all dollar positive and more likely under Trump. European FX would come under broad pressure in the event of universal tariffs and worsening geopolitics, while the low yielding JPY and CHF are more susceptible to higher US rates.

CEEMEA: Higher defence spending and closer trade ties with the US could provide the CEE currencies with some protection against any new US trade threats. South Africa’s rand remains a China growth story, while Turkey’s lira remains a bystander.

Asia: Any renewed trade protectionism could broaden out beyond China to countries like Vietnam. Tariffs could be used as a threat to deliver stronger Asian FX. Chinese authorities, playing the long game, will continue to fight a weaker CNY.

Latam: Brazil and Chile’s currencies performed poorly through the last Trump administration – Chinese demand playing a key role here. Universal tariffs or any threats to renegotiate the USMCA in 2026 could drag Mexico’s peso a lot lower.

US Debt Sustainability: Default has not happened before, but the next administration will have to work very hard to keep investors onside. A debt crisis and the threat to the US financial system could counter-intuitively send the dollar higher.

Weak $ Policy: Judge any new administration by its deeds, not words. The fiscal and monetary policy mix will drive the dollar whatever the next Treasury Secretary says.

De-dollarisation: A gradual decline in the dollar’s role in trade seems likely. But as the financial flow’s currency of choice, the dollar will remain in demand.