What impact does the tight US election race have on risky currencies?

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The US Dollar Strengthened While Riskier Currencies Declined Amidst a Tight US Election Race

The US dollar experienced a significant surge, reaching its highest level in over a month, as early presidential election results indicated a closely contested race. This outcome defied market expectations for a decisive victory by Democrat Joe Biden, leading to a decline in currencies perceived as riskier. President Donald Trump's wins in key states such as Florida, Ohio, and Texas contributed to the uncertainty, dashing hopes for a swift and clear electoral conclusion.
Dollar Surges as Electoral Clarity Fades

As European markets opened, the US dollar climbed by approximately 1 per cent against a basket of major currencies. This upward movement reversed a trend observed earlier in the week, when the dollar had fallen to a one-week low based on expectations of a Biden win. The tightening election race, particularly Trump's victories in battleground states, disrupted the market's anticipation of a clear outcome, prompting a flight to the perceived safety of the US dollar.
Riskier Currencies Experience Significant Weakness

Currencies that are typically more sensitive to global economic and political shifts, often referred to as riskier currencies, saw considerable depreciation. The offshore-traded yuan, the Australian dollar, and the Norwegian crown all weakened. This decline was particularly pronounced for currencies that have historically been impacted by Trump's protectionist trade policies, with the Mexican peso weakening by over 3 per cent and the yuan falling by 0.7 per cent.
Euro and Sterling Face Declines

The euro and sterling also experienced notable drops against the strengthening dollar. The euro fell by 0.7 per cent to US$1.1637, reaching its lowest point in more than three months. Sterling tumbled by 1 per cent. These movements reflect a broader market sentiment shift, where a less clear electoral outcome and the potential for prolonged uncertainty led investors to divest from assets perceived as less secure.

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What impact does the tight US election race have on risky currencies?

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