US Dollar: How is the Blue wave reshaping growth and risk? – Commerzbank

Initial weakness in the Dollar against the Euro, alongside possible pressure on US Treasuries yields and equities, particularly tech-heavy stocks, follows a strong Democratic showing in US elections, according to Commerzbank’s Volkmar Baur. His assessment points to potentially slower AI-related investment and less pressure from Trump on the Fed. Over time, a possible move towards political centrism could also reduce the political risk premium attached to the US Dollar.

Could Democratic gains deepen Dollar weakness?

"In an initial reaction, the US dollar lost around half a percent against the euro, suggesting that markets were also caught off guard by the outcome and had not fully priced it in. Two factors are likely to reinforce this move in the short term. First, Democratic control of both the House and Senate should make further fiscal easing unlikely over the next two years."

"Second, a Democratic majority could slow the rapid pace of investment in AI infrastructure and data centers."

"US equities, and the more tech-heavy Nasdaq in particular, are likely to come under pressure today. As we have noted before, the US dollar has benefited substantially in recent months from the enthusiasm surrounding US equities and the resulting capital inflows. Dollar weakness could therefore become somewhat more entrenched over the coming hours."

"If investment begins to lose momentum, markets could start pricing in a weaker phase of US growth, which would weigh on the dollar."

"If political debate in the United States were to shift back toward a more constructive direction, admittedly a very big if, this could reduce the political risk premium embedded in the US dollar and provide the currency with structural support over the longer term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)