US election uncertainty will cause fairly sharp moves in financial markets in the next 48 hours
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The big uncertainty among investors going into this year’s US election, that the outcome would be delayed and/or contested, has come to pass.
So far, the FX market has actually reacted relatively calmly, which is somewhat of a surprise given that the market had positioned itself for a comfortable Biden victory. The dollar sold-off as polls began to close in anticipation of a Biden win and then rallied as the night progressed, albeit EUR/USD is now trading roughly where it was at London open on Tuesday.
Whether this limited volatility remains the case is unlikely. We think that the longer the process drags on, the more support we’ll see for the safe-havens (including the dollar) at the expense of just about every other currency. The result in both Pennsylvania and Michigan may not be available until Friday, so it could be a few days before the final result is known. Trump has already stated his view that voter fraud has taken place, so a Biden win would undoubtedly be contested by the President, which would drag the process even further into the future and weigh on risk sentiment.
Regardless, we expect some fairly sharp moves in financial markets in the next 48 hours or so, as more ballots are counted and investors get a clearer picture as to who has actually won.
