How Politics Drives Financial Market Shifts

Political uncertainty and other changes can have far-reaching effects on global financial markets. Elections, especially the upcoming presidential election in the United States, often create tension and expectations that spill over into the currency markets. Depending on the outcome, elections can lead to significant shifts in exchange rates, impacting everything from investor sentiment to global trade flows.

Volatility, Policies, and Uncertain Markets

An election can often lead to increased market uncertainty, especially if the outcome is unpredictable or candidates hold different economic views. This uncertainty can cause significant fluctuations in a nation’s currency as traders and investors attempt to anticipate potential fiscal or trade policy changes. In such times, currency brokers sometimes widen spreads or adjust margin requirements to adapt to the increased volatility.

An election outcome will also lead to changes in a nation’s broader economy, such as tax regulations, public spending, or trade agreements.

Economic Policies of Trump vs. Harris

Historically, the economy has been one of American citizens’ most important election issues. Depending on the victor, the outcome will shape economic policies in the US and across global markets.

Donald Trump’s agenda includes lowering taxes for people and corporations, raising tariffs and fees on imported goods, and boosting domestic oil production. On the other hand, Kamala Harris supports reducing taxes for low- and middle-income earners but aims to increase corporate taxes and introduce a new type of wealth tax. She also plans to invest in areas such as “green jobs” and support for families with children while addressing high food prices.

The effects of a Trump victory would likely include higher inflation and interest rates, leading to a stronger US dollar. The reduced tax burden could boost the stock market in the short term, though it may have negative long-term consequences, especially given concerns over the US deficit. Overall, greater market volatility and uncertainty are expected if Trump wins.

Harris’s economic policies are expected to generate less volatility and be less inflationary. However, the absence of corporate tax relief benefits has dampened investor enthusiasm and may negatively impact stock markets.

Safe Haven Assets During Elections

In turbulent times, such as the days before and after a US election, investors tend to shift their capital to so-called “safe havens.” These are financial assets expected to maintain or even increase in value during economic downturns. Such “safe havens” typically include gold, government bonds, and some currencies, such as USD, CHF, or JPY.

With increased capital flow to these safe-haven currencies, volatility may arise in other currency pairs. Currency traders can leverage these movements, while brokers may see an uptick in trading volume in safe-haven pairs, which in turn impacts liquidity and spreads.