Trump vs. Harris: How could each candidate affect the dollar?

Key points

• Dollar index at 103.7 amid election uncertainties and potential Fed rate cuts
• Trump's tariffs and tax cuts could initially boost but potentially weaken dollar long-term
• Harris's tax reforms aim to boost spending but may cause dollar fluctuations
• Both presidencies could affect economic growth and investor confidence
• Congressional control and fiscal policy shifts are crucial for dollar's future

Current state: US dollar remains strong amid pre-election investor cautiousness

The dollar index hovered around 103.7, reflecting losses due to presidential election uncertainties as traders pulled back from "Trump trade" strategies. Polls suggest a tight race between Kamala Harris and Donald Trump, adding to market volatility. The potential outcome of which party controls Congress is crucial, as it could lead to major shifts in fiscal policies regarding spending and taxes. Meanwhile, the Federal Reserve is forecasted to announce a cautious 25 basis point rate cut on Thursday, balancing inflation concerns with a weakening labor market. Another similar rate cut is anticipated in December. This situation could weaken the dollar as political and fiscal uncertainties, combined with expected interest rate cuts, may reduce its appeal to investors seeking stable returns. Lower interest rates typically make a currency less attractive, potentially leading to further depreciation if economic conditions don't improve or if fiscal policies shift significantly.

How might a Trump presidency influence the US dollar?

Republican candidate and former President Donald Trump has proposed several economic measures that could significantly impact the US dollar. Key policies include implementing a universal baseline tariff on all US imports, with a particularly steep 60 percent tariff on imports from China. Trump also aims to make the individual and estate tax cuts from the Tax Cuts and Jobs Act permanent, potentially without reinstating the cap on state and local tax deductions. His tax policy considerations include lowering the corporate tax rate to between 15 and 20 percent, especially for American production, and introducing taxes on large university endowments. Additionally, Trump is contemplating replacing income tax with tariffs and exempting tip income, Social Security benefits, and overtime pay from taxation. Other proposed changes with this election outcome include offering a deduction for auto loan interest, providing a tax credit for family caregivers, and expanding the child tax credit to a $5,000 universal credit.

These measures could have varied effects on the US dollar. Higher tariffs, particularly on Chinese goods, might initially strengthen the dollar by reducing imports and supporting domestic industries, improving the trade balance. However, such measures could provoke retaliatory tariffs, harming US exports and global trade relationships, eventually weakening the dollar. Lower corporate tax rates might attract investment, potentially boosting the dollar, but the resulting fiscal deficits could raise concerns about long-term economic stability, which might exert downward pressure on the currency. A Trump victory’s influence on the dollar would hinge on how these policies affect economic growth, trade policies and dynamics, and investor confidence, with markets monitoring policy developments closely to gauge their impact. Additionally, Trump's influence on Federal Reserve appointments and interest rate preferences could shape monetary policy, with a lean towards lower rates possibly reducing the dollar's appeal to international investors. The balance between short-term economic stimulus and long-term fiscal and geopolitical considerations would ultimately determine the dollar's trajectory.

How might a Harris presidency influence the US dollar?

Democratic candidate and current Vice President Kamala Harris has unveiled her campaign's tax and economic policies, which focus on reforming taxation and offering social incentives. Key proposals include exempting tip income from taxation and expanding the child tax credit, earned income tax credit, and premium tax credits to increase disposable income and stimulate consumer spending. Her platform also introduces new tax incentives for housing and tax credits for specific business activities to bolster the housing sector and stimulate targeted industries. While Harris might continue some fiscal strategies from the Biden-Harris administration's FY 2025 budget, she also proposes changes such as raising the capital gains tax rate to 28 percent.

These policies could influence the US dollar by affecting economic growth and investor sentiment. Expanding tax credits and incentives might boost spending and economic activity, potentially strengthening the dollar through increased economic confidence. However, raising the capital gains tax could alter investment behavior and market dynamics, potentially causing fluctuations in the dollar's value as investors adapt. Continuity with existing fiscal policies might provide stability, but significant shifts could create uncertainty, affecting the dollar depending on market perceptions. Overall, the dollar's trajectory under a Harris win would hinge on how these policies impact growth, inflation, and fiscal sustainability, with effects shaped by both domestic and global investor sentiment.

In conclusion, the dollar's future trajectory is finely balanced amid US Presidential election uncertainties, with potential policy shifts under either Trump or Harris likely to influence its strength. While Trump's proposed tariffs and tax reforms could initially bolster the dollar by supporting domestic industries, they might also trigger retaliatory tariffs, ultimately weakening it. Conversely, Harris's focus on tax credits and social incentives aims to stimulate spending and economic confidence, which could strengthen the dollar but risk fluctuations through increased capital gains taxes. As both candidates' policies and election day unfolds, the dollar will likely respond to how these measures impact economic growth, investor sentiment, and fiscal stability, with global markets closely watching Congressional power dynamics and monetary policy decisions.

How to Trade US Dollar

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing. Past performance is not indicative of future results.