US Dollar: Growth and risk shift under blue wave – Commerzbank

The US Dollar initially fell around half a percent against the Euro. Commerzbank’s Volkmar Baur attributes the decline to a strong Democratic showing in US elections, which he argues could also push US Treasury yields and equities lower, particularly technology-heavy stocks. Baur points to potentially slower AI-related investment and less pressure from Trump on the Fed. A possible move towards political centrism could, over time, reduce the US Dollar’s political risk premium.

Half-Percent Dollar Decline Follows Democratic Gains

"In an initial reaction, the US dollar lost around half a percent against the euro, suggesting that markets were also caught off guard by the outcome and had not fully priced it in. Two factors are likely to reinforce this move in the short term. First, Democratic control of both the House and Senate should make further fiscal easing unlikely over the next two years."

"Second, a Democratic majority could slow the rapid pace of investment in AI infrastructure and data centers."

"US equities, and the more tech-heavy Nasdaq in particular, are likely to come under pressure today. As we have noted before, the US dollar has benefited substantially in recent months from the enthusiasm surrounding US equities and the resulting capital inflows. Dollar weakness could therefore become somewhat more entrenched over the coming hours."

"If investment begins to lose momentum, markets could start pricing in a weaker phase of US growth, which would weigh on the dollar."

"If political debate in the United States were to shift back toward a more constructive direction, admittedly a very big if, this could reduce the political risk premium embedded in the US dollar and provide the currency with structural support over the longer term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Find out more.)