The US Election news is seen driving volatility throughout the markets. As the market speculates who could be the next President, J.P. Morgan estimates a 60-70% chance of Trump winning the election. It noted that volatility in the G10 currencies has increased leading up to the election, reaching new highs. It also underscored that current election volatility is 10-30% higher than in 2016 and 2020.
“USD Could Go Up 5%“
On the potential USD reaction to the US election outcomes, JPM estimates that if there’s a Red Sweep (Republicans winning everything), the USD could go up 5%. If Trump wins but Congress is split, it might rise about 1.5-2%. However, if Harris wins with a split Congress, the USD is expected to weaken, JP Morgan noted.
Overall, it believes that the current market positioning isn’t expected to hinder the USD from rising and might even help if Harris wins.
Notably JP Morgan mentioned that they are keeping their positions light in emerging market currencies. After Trump’s election win, it expects a rise in USD and volatility.
‘Current Market Set Up Very Different’
JP Morgan believes that the market’s election set-up is very different to 2016. Even though the odds of a Donald Trump victory on November 5 have lengthened a bit in recent days, investors are continuing to assume that a Republican win would see the markets deliver a similar move to that of 2016, according to JPMorgan.
Currently, the 10-year yield is 4.29% and just shy of three-month highs, partly the result of the inflationary ‘Trump-trade’ having been partially priced in. It also noted that investors are already very long equities compared to their holdings eight years ago.
What if Harris should win?
“The uncertainty over the path of corporate taxes would increase near term. Further out, equity performance might see as a support the reduced tariffs risks in that scenario,” JPMorgan said.
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