U.S. Election "Collision" with the Fed Meeting: Historic Opportunity vs. Nuclear-Level Risk

Eight years ago, he was a dark horse, defeating Democratic rival Hillary Clinton to become the 45th U.S. President, sending the U.S. dollar soaring and shaking up global financial markets. Four years later, he sought re-election but lost, and left the White House with the words, “The way we left is how well return.” In the years since, popular former President Trump has traveled widely, promising to fulfill previous commitments. As the countdown to the 60th U.S. presidential election begins, this man who once made international markets tremble is back in the spotlight.

Tomorrow, November 5, 2024, U.S. election voting officially begins, with results expected on the evening of November 6. This long-standing struggle between Republicans and Democrats is reaching its ultimate showdown, an event that excites and keeps every forex investor on edge.

While many focus on who will be President, one critical detail often overlooked is that alongside the presidential election, 468 Congressional seats (33 Senate seats and all 435 House seats) will also be contested. Will the winning party achieve “sweeping victory” and control both houses or will we face a “divided government”? This is the real issue forex traders should keep an eye on.

What makes this moment even more intense is that right after the election, the Fed's November interest rate decision will take place. Will there be a rate cut? If so, by 50 basis points or 25? On the evening of November 7, the Federal Reserve will present a financial feast to the markets. Undoubtedly, the upcoming week presents an epic market opportunity along with nuclear-level investment risks.

U.S. Election

This article will focus purely on the elections impact on financial markets, avoiding political predictions and discussions.

The U.S. employs a two-party system, with the presidency decided by election votes. Trump‘s Republican Party leans toward traditional American policies, representing the upper middle class, focusing more on U.S. domestic issues with a policy to strengthen the dollar through tax cuts domestically and higher tariffs internationally. On the other hand, Harris, standing in for “Biden’s replacement,” represents the Democratic Party, which tends to represent the middle and lower classes and aims to influence global affairs with a more diversified approach.

The U.S. dollars role as the global financial market's linchpin—capable of shifting entire markets—is well known. While the Fed is theoretically independent, the president can still impact the dollar through fiscal and trade policies. Therefore, for forex and stock market participants, understanding Trump and Harris's potential approaches to the dollar and fiscal policy could offer insights into the dollar's likely trajectory.

Impact of Election Results on Major Markets

1. Republican “Red Wave” Victory with Trump Leading: Trump's emphasis on fiscal expansion and tax cuts could boost U.S. economic growth, benefiting the dollar. Additionally, a more aggressive fiscal policy might increase spending and inflation, supporting a higher interest rate environment and stronger dollar.
2. Trumps “America First” stance also extends to trade policies, including potentially raising tariffs on imports from Asian countries to 60% or higher. If such plans are realized, global trade risks could rise, pushing investors toward the safety of the dollar in times of increased global trade friction.
3. If Trump wins the presidency and the Republicans gain Congress, the dollar might structurally strengthen, while non-U.S. assets like the euro and gold could weaken. Trumps policies could also lift U.S. stock markets, with the S&P 500, Dow, and Nasdaq potentially benefitting.
4. Democratic “Blue Wave” Victory with Harris Leading: If Harris wins, she is likely to continue Bidens policies. Analysts predict that Harris would maintain fiscal conservatism and retain existing trade policies, which could hinder growth prospects for the U.S. economy and weigh on the dollar.
5. The Democratic Party is often seen as aggressive in foreign policy, especially in regions like Eastern Europe and the Middle East, and this could create unfavorable conditions for international trade and negatively impact the dollars long-term performance.
6. A Democratic sweep in both the presidential and congressional elections could lead to a weaker dollar, boosting assets like the euro and gold.
7. Divided Government: If the winning party fails to secure Congress, creating a divided government could lead to policy gridlock. The U.S. is known for “political wrangling,” where debates often lead to compromises. Analysts caution against underestimating this outcome, as divided governments could impact the dollar in the short term with limited recoveries while following the Feds policies more closely.

Fed Interest Rate Decision

If the U.S. election brings the forex market to an annual high, the Fed‘s interest rate decision could push it further. Scheduled for November 7, the Fed’s latest decision follows two key economic releases: September‘s PCE inflation data and October’s non-farm payrolls report, which are critical indicators for Fed policy.

Most economists expect a 25-basis-point rate cut, bringing rates to 4.5%-4.75%. Although the PCE inflation and jobs data may influence the decision, most analysts believe these numbers wont shift the Fed's path.

Luzzetti from Deutsche Bank noted that most Fed officials favor a cautious rate cut, while Tim Duy from SGH Macro Advisors agrees. Currently, the market has almost fully priced in a 25-basis-point cut, with the probability reaching 95.7%.

For forex investors, it's vital to monitor the Fed's rate cut scale, the Feds reaction to the election, and Powell's tone regarding economic and policy expectations to gauge the outlook for the dollar and other assets.

Seizing Forex Investment Opportunities

The upcoming U.S. election and Fed decision will create an unprecedented investment bonanza across forex, metals, energy, and stock markets. For regular forex investors, this is a rare wealth-building opportunity requiring thorough preparation in capital, psychology, and techniques.

Which assets should investors focus on? The top choice is forex, especially the EUR/USD, which is the most popular forex pair globally. Other USD pairs like JPY, GBP, CHF, AUD, and CAD are also worth watching. Secondly, gold remains an attractive investment due to its volatility. Experienced traders might also consider U.S. and Asian indices, including the S&P 500, DAX, Hang Seng, and A50.

Lastly, investors are reminded to be aware of the huge risks that accompany these opportunities. Market uncertainties are one aspect, but a larger concern is the potential for fraudulent activities by forex platforms.

Historically, during significant events like the U.S. election or the Feds decision, many unregulated platforms use short videos and social channels to exaggerate earnings, luring investors into “pig slaughtering” forex scams. Even some regulated platforms may deceive investors through misleading promotions, excessive trading signals, platform disruptions, intentional margin calls, and other manipulative practices.

If you encounter these fraudulent activities, feel free to use the WikiFX app to expose, report, and seek help in recovering lost funds. Remember, WikiFX helps you stay informed, revealing the dark side of the forex market to keep your funds safe.

Disclaimer: The information provided in this article is for reference only and does not constitute, nor should it be interpreted as, investment, trading, or specific financial operation advice from WikiFX. Investments involve risks, and readers should make their assessments and consult a professional financial advisor when necessary.