With less than two months to go to voting day for the US presidential election held on 3 November 2020 and the race between Donald Trump and Democrat leader Joe Biden tightening, financial markets are starting to get the jitters.
During the last week, Federal Reserve finished the September meeting— the last one before Election Day. The US central bank held rates steady as expected. Fed announced that it will keep interest rates near zero for years until a recovery is firmly in place. Since 1971, when the Fed introduced its Fed funds rate, the bank has changed its policy rate every single election year except for 2012.
Few notable financial market movements ahead of US election:
Stock Market
Wall Street slumped sharply this month following a selloff in US tech stocks due to overvaluation concerns after another month of stellar gains in August. The strong recovery of US equities has been supported by optimism around potential COVID-19 vaccines. US markets led the way with the S&P500 up 7% – its best August since 1984. The Dow Jones also moved closer towards positive territory for 2020 since bottoming out in March at the height of the pandemic but is yet to reclaim its February highs.
Currencies
US Dollar Index: The US dollar index surged to two months high on Thursday after it struggled a couple of weeks to find buyers ahead of the election. The US election should mark a turning point for dollar perceptions.
EUR/USD: In 2020 the currency pair surged more than 10% against the US dollar. The currency pair EURUSD hits 2-month this week after negative comments from ECB policy makers. During the last European Central Bank meeting, the central bank officials voicing concerns about the strong euro, with the currency recently touched a two-year high of US$1.20. Back in 2016, EUR/USD increased in the run-up to the election, but that was driven by expectations of Hillary Clinton winning. With Trump’s surprising win, the dollar gained, and the Euro slipped lower.
USD/JPY: Quite possibly the most important forex pair to watch as the election nears is USDJPY. The currency pair remains under pressure ahead of election supported by the recent stock market bearish move and broader USD weakness.
Commodities
Gold: The yellow metal surged more than 35% this year boosted by lower interest rates and rising coronavirus cases. Gold reached a new milestone with an intraday high of $2,075 on 7th August. The yellow metal returned as a favoured option for those traders seeking a safe haven during turbulent times and 2020 has been full of uncertainty. The upside rally also supported by a weaker dollar and escalating tensions between the US and China. In the 2016 presidential elections, after Trump’s surprise win over Democrat Hillary Clinton investors fled to gold, a safe haven asset. That pushed gold prices up nearly 5%.
Crude Oil: Oil prices trading steady after two consecutive weekly drops. The price boosted by the positive weekly API and EIA inventory data. The market participants believe in case Democrat leader Joe Biden elected will be negative for the oil industry, because he may stop issuing drilling permits for federal lands and waters, which would shrink US oil production by up to 2 million b/d by 2025.
