All-out Dollar Gains on a "Red Sweep" in November
- Written by: Gary Howes
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File image: Official White House Photo by Shealah Craighead.
Foreign exchange strategists at Deutsche Bank see across-the-board U.S. Dollar gains if Donald Trump wins in November and his Republican party secures control of both the House and Senate.
This "red sweep" outcome is increasingly likely according to odds markets which have started to move in favour of Trump and his party of late.
"We see the most bullish dollar outcome as a red sweep and the most bearish dollar outcome on a blue sweep, but the magnitude of the moves is likely larger in the former," says George Saravelos, an analyst at Deutsche Bank.
"We see the dollar rising across all currency pairs in a red sweep," he says.
Having been a toss-up for so long, betting markets have started to move steadily in Trump's favour of late:
According to aggregates by Bookmakers Review, betting odds have accurately predicted 77% of the expected candidates winning over the last 35 years.
"Betting markets have evolved into reasonably accurate predictors of elections - even more than some polls - but they're far from foolproof," says Thomas Gift, a political scientist who runs the Centre on U.S. Politics at University College London.
Currency analysts are broadly in agreement that Trump winning is supportive of the USD outlook owing to the significant import tariffs he intends to enact, which would raise domestic inflation and prevent the Federal Reserve from cutting as far and as fast as previously assumed.
"The proposed 10–20% increase in tariffs across the board has the potential to be inflationary," says Tom Kenny, Senior International Economist at ANZ Bank.
Investment bank consensus forecasts update: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/EUR. Please request a copy here.
His stimulatory tax-cutting agenda would also bolster the economy, grow the country's debt and prolong the U.S. economic exceptionalism trade (which is USD-supportive) for longer.
"A red sweep would likely lead to the largest deficits," says Saravelos.
Strategy-wise, Deutsche Bank thinks selling Euro-Dollar makes sense under a 'red sweep' scenario.
Should Trump win but the legislature remain divided the USD is tipped to remain supported, although the outright bull case is dimmed.
Saravelos says buying the USD and selling NZD and GBP is in order.
Should Harris pip Trump to the post, the outcome is considered unsupportive of the Dollar as a status quo is maintained.
