Trump vs. Harris: election effects on currency and crypto

Dollar movements during the campaign

As the US election approaches, the electoral campaign is already influencing the US dollar's trajectory. A few months back, we observed a strengthening of the Dollar Index before the debate between Joe Biden and Donald Trump. Signs of fatigue and communication errors from Biden were multiplying, casting doubts on his chances against Trump.

The televised debate intensified these concerns, pressuring the Democratic camp. Less than a month later, Biden announced he would not seek re-election, leading to a decline in the dollar against major currencies in August.

Why is Trump associated with a strong dollar?

Trump is linked to a strong dollar primarily because:

• He advocates for tax cuts for US businesses and households, particularly the wealthiest, a theme from his 2016 and 2024 campaigns
• Tax cuts boost consumption and economic activity but can also lead to inflation, which tends to drive up US interest rates and the dollar
• His promotion of protectionist measures, such as increased trade tariffs on Chinese goods, is viewed as inflationary, raising the price of imports
• Protectionist measures can weaken foreign currencies, leading to a relative strengthening of the dollar.

But did the dollar actually strengthen during Trump's term?

Surprisingly, no. From November 2016 to November 2020, the Dollar Index decreased by approximately 5%. Going further back to George W. Bush's presidency, the Dollar Index fell by about 25% over his two terms.

Why is Kamala Harris perceived as a 'bearish' candidate for the dollar?

During the Covid-19 pandemic and afterwards, President Biden implemented an expansionary fiscal policy aimed at supporting the American economy in the face of the health crisis, strengthening certain strategic sectors against Chinese competition, promoting the development of new energies and enhancing infrastructure. This policy led to a significant increase in deficits, and it is evident that this pace cannot be maintained for several more years.

If Kamala Harris wins the presidential election, she is expected to apply a more moderate fiscal policy, probably with an increase in taxation on businesses, the wealthiest households and possibly on capital gains.

This less expansionary policy would align with the 'soft landing' of the US economy desired by the Federal Reserve (Fed), allowing the central bank to continue its rate-cutting cycle without risking a rapid rebound in the economy and inflation. This environment could initially be bearish for the dollar due to a slightly weaker US economic growth rate, but also due to a generally less aggressive foreign trade policy than under a Trump mandate. This could favour a continued rebound of the euro against the dollar for some time.

Should we conclude that Democrats are 'bearish for the dollar'?

And the answer is, again, no! A study by Imperial College Business School analysing data over a 40-year period shows that the US dollar appreciated by an average of 4.15% per year during Democratic presidential cycles and depreciated by 1.25% per year on average during Republican cycles.

In conclusion, it is still unwise to base investment strategies solely on the colour of the political candidate that wins the election. The emergence of certain economic crises or geopolitical events shapes the dollar's trajectory, as well as the behaviour of the Fed in response to these events. It is clearly more judicious to rely on the observation and analysis of these events to make investment decisions.

Is Trump more favourable to Bitcoin than Kamala Harris?

If it's a question of media noise, then yes, Donald Trump is significantly more vocal about cryptos than Kamala Harris. Beyond the announcement of the launch of his decentralised cryptocurrency platform, 'World Liberty Financial' (whose actual launch date is still unknown), and his regular presence on social networks, it's difficult to know if the former US president would implement a genuinely pro-crypto policy if elected for a second term.

A few years ago, he described Bitcoin as a 'looming disaster' and a 'scam', yet today he is one of its most fervent supporters. There is, therefore, a degree of political opportunism and posturing in these statements of recent months.

Former US President Donald Trump speaks at the Bitcoin 2024 conference

Kamala Harris and the SEC stance

The US Securities and Exchange Commission's (SEC) very tough stance for several years, under Joe Biden's mandate, does not make it easy for Kamala Harris to appear as a pro-crypto candidate, even if some of her recent statements have leaned in that direction.

At a fundraising event for her campaign in September, she stated: "We are going to invest in America's future. We will encourage innovative technologies like artificial intelligence and digital assets, while protecting our consumers and investors."

Bitcoin's short-term response to election dynamics

Before the election, this perceived difference between the two candidates slightly influences Bitcoin's trajectory. For example, after the Harris-Trump debate, which turned to the current vice president's advantage, Bitcoin fell slightly before recovering. Conversely, before Joe Biden withdrew from the nomination race, Bitcoin experienced some upward phases when Trump came out ahead in the polls.

However, these movements describe only short-term fluctuations. It seems unlikely that Bitcoin's trajectory will be strongly or durably influenced by the election of either candidate.

Bitcoin continues its upward trend

United states will not block a promising technology as the bitcoin

The United States has a strong culture of innovation, technology, and efficiency. If a technology or innovation allows for improving certain processes and gaining competitiveness, it is well received and can develop with the blessing of political and regulatory authorities. And even if this journey is not always linear, it is rare for the United States to block a promising technology. And blockchain and certain crypto assets are part of this.

Bitcoin's trajectory will also depend a lot on the trajectory of US monetary policy and the pace of Fed rate cuts, a pace that itself depends on the performance of the economy... and inflation, which should not be definitively buried.