Key Takeaways

  • In normal times, presidential elections don’t have a great impact on financial markets, as the business-cycle is typically the driving force. However, these are not normal times, and “election risk” is already having an impact.
  • Global investors are not only facing trade and policy-related “election risks”, but also a possible Covid-19 second wave and double-dip recession, along with overextended equity and bond valuations.
  • More recently, President Trump’s vow to replace Supreme Court Justice Ruth Ginsburg prior the election and China’s military threat to Taiwan have investors bracing for a highly volatile, “risk-off” market for the remainder of the year. The US dollar tends to do well as a safe-haven currency in such markets.

“The only way we’re going to lose this election is if the election is rigged.” President Trump said at a rally in Wisconsin last month1.

Investors may be underpricing market volatility after the elections. Many investors are braced for turbulent markets in the lead-up to the elections, but may be underpricing market volatility after the elections. A Biden victory, and a sweep should Democrats take the Senate, may lead to a drawn-out, contentious, contested election or a potential constitutional crisis. The dollar may be vulnerable if global investors foster fresh doubts about the US and its policies going forward.

Biden’s tax hike. Trump lowered the corporate tax rate in 2017 from 35% to 21%, which boosted earnings and stock prices (the “Trump bump”)2. If elected, Biden plans to hike the rate to 28%. Goldman Sachs predicts that such a hike would take about 12% off the total 2021 EPS of the S&P 500 firms3. That may increase the appeal of foreign stocks (and foreign currencies) in 2021 and beyond after years of US shares outperforming other G-10 markets.

Biden’s moderate foreign policies.

  • China. Biden may extend Trump’s China policy, but implement it differently. He plans to restore high-level, regular meetings with President Xi and his officials, engage more with our allies and coordinate policy decisions4. Recent China-Taiwan military tensions aside, a more stable US-China relationship could see the Chinese yuan make further gains against the dollar.

  • Europe. Biden is pro-European Union, and his views on climate change are akin to Germany’s. In contrast, Trump favored Brexit; he said he’d like to see more exits from the EU5. Traders are seeing a Biden win as a tailwind for euro strength.

Four election scenarios, (betting odds)* and forecasted market impact:

  1. Democratic sweep (48% chance): A steeper yield curve, a weaker dollar, weaker equities but eventually rebounding with more fiscal stimulus.

  2. Biden and a Republican Senate (22%): Lower market volatility, a flattening yield curve, a weaker dollar (but less so than with a sweep), and steady equities -- “a positive outcome for Wall Street, but less beneficial for Main Street.”

  3. Trump and a Democratic Senate (18%). A flattening yield curve, a strong dollar and higher equities.

  4. Trump and a Republican Senate (12%): A steeper yield curve, a slightly weaker dollar, and lower equities. A low probability event, but at least some investors are expressing concern about economic, social and global stability should Trump enjoy a second term with a rubber-stamping Senate.

Final comments:

Biden currently leads Trump in both national polls and in betting odds, but the spread is narrowing. Investors are bracing for volatile markets in the lead-up to the elections. In this “risk-off” environment, our long-term bearish view on the dollar remains intact, but may have to be put on hold until the dust settles. At least in terms of limiting the time for post-election disputes, the federal “safe-harbor” rule requires final resolution by December 8.

Presidential debates are scheduled for Sep-29, Oct-15, and Oct-22.

Interesting factoid: whenever the S&P is lower from the end of August to the election, the incumbent party has lost the White House in all six instances.

*Averages from and

1 Ian Schwartz. “Trump: The Only Way We Lose The Election Is If The Election Is Rigged.” RealClearPolitics. August 17, 2020

2 Steve Denning. “Understanding the Trump Bump: Forget About Jobs.” Forbes. Dec 10, 2016

3 John Kartch. “Goldman Sachs: Biden Tax Hikes May Pose Greater Economic Threat Than Coronavirus.” Americans for Tax Reform. June 11, 2020

4 Alex Ward. “Joe Biden’s plan to fix the world.” Vox. August 18, 2020

5 David M. Harszenhorn. “Trump officials ask which country will be next to exit EU.” Politico. January 13, 2017

Please feel free to reach out to your SVB Currency Advisor for a deeper discussion about FX, what impact it may have on your firm, and ways to mitigate risk.

Scott Petruska, CFA Headshot
Written by
Scott Petruska, CFA
FX Market Insights

Insights into foreign exchange markets, strategies, and the global events that impact your cross-border transactions.
More on this topic

Editor's Top Picks
Read this next

FX Monthly Outlook: Currency wars coming as global economies drag

Global currencies in race to the bottom.
Read more

Foreign Exchange Risk Services

Need help with managing currency risk and volatility? Help your business gain a competitive edge with SVB Foreign Exchange (FX) risk services and advisory. Learn more

This article is intended for US audiences only.

This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources.

Opinions expressed are our opinions as of the date of this content only. The material is based upon information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. The views expressed are solely those of the author and do not necessarily reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates.

Subscribe to receive the Daily FX Update in your inbox.

By providing your email address and clicking on the Subscribe button below, you consent to receive emails from Silicon Valley Bank for your chosen categories. You also consent to the terms of our Privacy Notice. If you have privacy questions, you may contact us at You can withdraw your consent at any time.

Insights from SVB Industry Experts

SVB experts provide our customers with industry insights, proprietary research and insightful content. Check out these related articles that may be of interest to you.

FX Monthly Outlook: Currency wars coming as global economies drag


FX Monthly Outlook: King Dollar dethroned


FX Monthly Outlook: US dollar falls for the third straight month fueled by signs of a global economic recovery


FX Monthly Outlook: US-China trade risk returns to the fore as the EU discusses stimulus spending


FX Market Insight: Five Buzzwords that Matter to the Markets


FX Market Insight: British pound (GBP)