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Will US Elections Make Or Break The US Dollar?

October 2016

US equities were off to a great start in 2016 but most market participants remain cautious ahead of the Presidential election scheduled in November this year, says Abhishek Goenka, Founder and CEO, IFA Global DMC

In September, major central banks released their policy statements but what was common amongst the statements of all of them is that they showed concern over slow global growth. Despite an uptick in global crude oil prices inflation of major economies has failed to pick and that clearly is evitable in the commentary of major central bank governors. Last month Australia, U.K., Japan and the US released their respective policy statement but amongst them Bank of Japan and the Federal Reserve was keenly watched as expectation was that the Bank of Japan could go further down by trimming rates in the negative territory and on the other hand the Federal Reserve could consider raising rates following recovery in the job market. In their policy statement the Bank of Japan refrained from cutting rates and said that the central bank will adjust the pace of its bond buying as needed to achieve that. The BoJ said that it would go further low in the negative territory and perhaps even deepen them in the future alongside its new 10-year target. On the other hand the Fed chair kept rates unchanged at its September meeting but strongly signaled it could tighten policy rates by end of this year if the labor market improved further. The Fed chair in her interaction with the media said that US growth was looking strong and rate increases would be needed to keep the economy from overheating and fueling high inflation. Policy makers have cut the number of rate increases they expect this year to one from two previously, according to the median projection of forecasts released with the statement.

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But is it that the Fed chair has lost its chance to raise this year as the Federal Reserve, last December, had projected four rate hikes in 2016 but officials at the central bank have failed to achieve their target for some reason or the other. From December last year, the Federal Reserve has had reasons like bad jobs report, fear over slowing growth in China, Brexit and in this December it could be politics, in the form of US presidential election. Wait by the Federal Reserve suggest that the fear to crisis continues to loom over the back of the mind. Result of the US presidential election will be one of the most influencing factors for the Fed chair to determine the rate hike decision. A Trump victory would hurt emerging market currencies as investors brace for more protectionist trade policies in the US.

Growth in the US had already began at a sluggish pace and most market participants were expecting a summer rebound, but so far, election concern are growing and apart from employment number most of  the indicators are slightly engaging. In 2016 the US economy grew at a pace of 1% in the first half of the year lower than the historic average of 3%. ‘Brexit’ and slump in the energy sector is also to be blamed for the sluggishness in the economy and now US election is on everyone’s mind.

The recent presidential debate between Republican candidate, Donald Trump, and Democrat candidate, Hillary Clinton, suggest that the Democratic candidate could have an upper hand in the election scheduled this November. US equities were off to a great start in 2016 but most market participants remain cautious ahead of the presidential election scheduled in November this year. Uncertainty continues to prevail following slow global growth, weakness in China’s economy and whether or not it would be a ‘Hard Brexit’. And now in the next couple of months the race for presidential election will get more intense and it will be important to see how both the candidates’ project themselves in a time when the most are concerned over a double dip recession that could jolt the market.

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