Investors are eagerly awaiting the announcement of a new US president. But they seem to have already decided that the winner will be the candidate from the Democratic Party, Joe Biden.
Why does everything happen this way and not another?
First of all, the surge in the US stock market and especially in technology stocks indicating this. It happens because the Democratic Party and Biden personally have complete support from companies in the technology sector, strongly connected by production chains with China. Therefore, investors believe that the victory of the Democratic candidate will lead to the normalization of trade relations between Beijing and Washington, which is the reason for the soaring prices of these companies’ shares.
The markets also believe that the end of the presidential race will lead to Congress finally adopting the previously promised new measures to support the country’s economy.
Of course, in the wake of strong growth of optimism in financial markets and increased demand for company shares, the US dollar, as expected, came under strong pressure. Earlier its rate against major currencies was supported by the demand for the safe-haven currency, which traditionally includes the Japanese yen and the US dollar. Another signal indicating its extreme weakness was the fall of the USDJPY pair, observed on Thursday.
Usually, its fall is explained by the growth in demand for the protective currency due to the growing negative market sentiment. But on Thursday, the growth of the yen occurred precisely because of the weakness of the dollar. By the way, the same strong demand for gold can also be explained by this.
Against the background of the post-election struggle between Trump and Biden, the Fed meeting on monetary policy once again reaffirmed the regulator’s commitment and personally its leader Jerome Powell to the need for a super-soft monetary policy. This is the most significant negative factor for the US currency rate.
What to expect soon
Assessing the emerging market sentiment, which is entirely influenced by the confrontation between Biden and Trump and the continuing market expectations that Joe Biden will be the winner, I believe that the rally in the stock markets may continue today and early next week. The fact that the Democrats come to power led by Biden will support this rally.