President-elect Joe Biden was due to take office in late January 2021. Nevertheless, he and his bitter rival Donald Trump have already rattled global financial markets. Unable to take a punch, the US dollar was badly bruised.
US dollar prospects and new President
In the 2nd half of 2020, the US dollar had been weighed down by a variety of fundamental factors. COVID-19 and the 59th presidential election are mainly to blame for the greenback’s weakness. It is common knowledge that any currency is vulnerable to a political crisis and even jitters. This is exactly what happened to the US currency in November. The greenback retreated across the board in response to the first rumours that the vote count would raise doubts and the loser would hardly admit defeat. As soon as Donald Trump had shouted from Twitter to "Stop the count!", it was evident that the US was on the verge of a political crisis. The world was in suspense watching a painful transition of power in the top global economy with the leading reserve currency. Jaded traders were unable to forecast market trends for the nearest days and even weeks. Someone believed in long-awaited stability and adjusted trading decisions accordingly. Other investors were braced for a political roller coaster and a slump in the US dollar. If Trump and Biden were professional forex traders, they would have failed to recognize a trend in the right time with such a myriad of viewpoints and forecasts.
Such confusion among investors set the stage for erratic gyrations across global financial markets. Traders were wavering between risk-free and risky assets. Some traders rushed to safe-haven assets. Others were buying up the weakening US dollar betting on its further strength. Some investors shifted focus towards risky assets like emerging market currencies.
In the first few weeks following the election, the market saw buoyant demand for gold. This safe-haven asset has been always viewed as the right investment solution in turbulent times. So, the stunning rally of gold means that market participants were puzzling out what to do. Even now, when political jitters are ebbing away, no one would dare to risk one’s capital as it is unclear whether the US political crisis is over. As soon as the market had grasped the point that the Democratic nominee was elected the 46th President, the precious metal took a nosedive. Having sat out the storm in financial markets, investors opted to sell their gold assets longing for riskier bets.
In the 3rd and 4th weeks following the presidential election, investors regained an appetite for risk. Emerging market currencies came under the spotlight in December 2020 as they bring both risks and quick gains. The Russian ruble, the Brazilian real, and the Indian rupee have been gaining ground amid the broad-based weakness of the US dollar.
Another challenger of the US dollar is bitcoin and a bunch of popular altcoins. In fact, crypto fans believe that Democrats with Joe Biden at the helm are more market-friendly. So, financial markets, including the crypto market, are sure to gain momentum amid his predictable policy.
Republicans’ policy was centered upon the commodity and manufacturing sectors. They neglected digital currencies and did not understand what to do with them. Now with the Democratic state leader, bitcoin is expected to extend its bullish run in the long term. Traditionally, bitcoin has advanced ahead of Christmas for 6 years in a row. Curiously, some crypto fans even advise traders to benefit from bitcoin’s Christmas rally and earn money for Christmas gifts.
Looking ahead, financial markets are sure to bring good trading opportunities in 2021. When it comes to prospects of the US dollar under Biden’s presidency, one thing is certain that unlike Republicans, Democrats are savvy enough to fine-tune the national currency. Therefore, those traders who are keeping the US dollar in their portfolios should expect a seesaw for the US currency. Moreover, experts warn traders of higher volatility not only for the US dollar but other financial assets for the whole of 2021. Under such market conditions, an investment portfolio should be well-diversified. The recipe of a perfect investment cocktail consists of two or three pairs of major currencies, some emerging market currencies, metals including gold, and of course cryptocurrencies, including bitcoin. It would be a good idea to adjust the proportions of an investment portfolio for time-sensitive market analysis, quality forecasts, fundamental and technical analysis.
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Global Brands, November 2020