With the outcome of the U.S. presidential election of 2024, waves have been set off across both the traditional and digital financial markets, impacting both volatility and shifting investor sentiment. The election turned into one of the most contentious elections, which means that both the currency and cryptocurrency markets are adapting to the upcoming policy shifts. It is projected that the outcome of the election will impact both the online forex trading and crypto markets, especially in the light of the expected regulatory changes, and the potential broader economic implications of the outcome.
Volatility in forex markets
For online forex trading, the outcome of the U.S. presidential election has had immediate impacts. The race leading up to the election had generated market volatility, and many investors had sought out safe-haven assets and re-evaluating investment positions.Â
Since the election, forex markets have seen fluctuations, especially when it comes to pairs involving the U.S. dollar, euro, yen, and the Chinese yuan. The volatility is especially a product of traders gauging how new or continued policies can impact the flow of international trade, the dynamic of the global market, and economic growth.
Dollar dynamics
In 2023, the U.S. dollar shows a mixed performance, fluctuating between strength against other currencies and with periods of decline. Initially, the dollar surged as uncertainty around the election activated many investors to seek out safer assets. Take for example the USD/JPY pair, which saw gains as the dollar strengthened against the yen.
In contrast, the euro and other G10 currencies had experienced a downward pressure in the light of uncertainty. Take for example the focal point in forex trading, the EUR/USD pair, which dropped in response to the uncertainty. As reported by FXStreet, the euro faced a slump, especially due to fears of a potential trade war that could be reignited under the newly re-elected Trump administration. Another currency that is particularly impacted is the Chinese yuan against the dollar, as it is of interest of investors to anticipate the potential tariff talks and trade policy adjustments, which would depend on the stand of the new administration.
Trade policy and economic growth outlook
The newly held presidential election casts a spotlight on America’s trade relations, especially in relation to key global players like China and Europe. If the Trump-administration will return to the same tariff-style as his previous presidential period, then the forex market could witness some significant impacts, since it would be expected that U.S. trading partners, especially in Asia, would react by increasing tariffs or implement other trade barriers.
According to a Yahoo Finance report, the Trump re-election could heighten the likelihood of protectionist policies. This is in contrast to what was expected from a Democratic victory, where fewer trade tensions and a stronger dollar was expected.
The role of inflation and interest rates in forex
Forex market movements are directly linked to U.S. inflation and monetary policies. After the presidential election last week, the Federal Reserve will be managing inflation closely, especially in the light of the concerns about increasing prices.
Analysts have projected that with a Republican victory, there will be an expected push for tax cuts, and this would further stimulate spending, which ultimately could lead to inflationary pressures that would continue to affect currency valuation. This is in stark contrast to the projections made for a Democratic victory, where more regulatory reforms were expected, to curb inflation and potentially strengthen the dollar in the long-term picture.
Crypto markets face regulatory uncertainty
At present, cryptocurrencies are relatively unregulated in the U.S., and the state of cryptocurrencies was at a crossroads with the 2024 election. The regulatory stance made by the Biden administration had raised concerns about stricter compliance for crypto firms. On the contrary, Trump has in the past made remarks indicating skepticism toward digital assets.
Market analysts from Investing News suggest that the newly elected Republican administration will be more lenient with crypto regulations, with the possibility to foster a more crypto-friendly environment. This is in contrast to what had been projected from a Democratic win, as this could have led to increased regulatory scrutiny.
Bitcoin and Ethereum: Price volatility amid uncertainty
The days leading up to the election impacted the market for crypto trading. If you want to learn about what is crypto trading, you can click the link and learn more. Bitcoin saw an increased volatility, with prices fluctuating a lot within just a week. The same was the case for Ethereum, which faced similar volatility due to its association with decentralized finance (DeFi) applications, which could be faced with changes in the light of regulatory changes.
With a hovering potential for tighter regulation, DeFi projects could be restricted, which would affect the overall value of the platform of Ethereum. Additionally, with the possibility of a central bank digital currency (CBDC) being introduced by the Federal Reserve, it is expected that it could either boost or undermine the confidence of the crypto market. This would depend on the design and integration into the current financial system.
Impact on stablecoins and CBDCs
Since the election, meme coins like Dogecoin has been skyrocketing in value due to the expected increasing role these meme coins could have in the cryptocurrency economic landscape. For stablecoins, which has their value pegged to fiat currencies, the stability and regulation could face changes depending on the regulatory approach of the Trump administration. It is expected that stablecoin issuers can face fewer restrictions under a Republican administration, with the potential of encouraging innovation in decentralized finance. On the contrary, it was expected that with a Democratic administration, there would be imposed greater regulatory requirements on stablecoin issuers, which could both raise concern related to transparency and consumer protection.Â
A great point of interest for crypto trading is the potential development of a U.S. CBDC. If this becomes prioritized, then it would increase regulatory pressure on other digital assets. This would add pressure on both crypto exchanges and wallets to adapt. CBDC would therefore change the landscape of online forex and crypto trading, as it would essentially provide an alternative digital asset, which would be directly tied to the US dollar.
Investor sentiment and risk appetite
The past week’s environment in the light of the election results has been fostering cautious sentiment among both forex and crypto traders. Many investors and traders are awaiting some clear signs regarding the fiscal and regulatory policies. The appetite from investors in high-risk assets, such as cryptocurrencies, will be sensitive to economic stability, and would therefore heavily rely on clarity about tax policies.
It is expected that the elected Republican-led government will encourage a pro-business atmosphere, which could result in a boost of risk-on assets such as Bitcoin and tech stocks. This is in contrast to what was expected from a Democrat-led administration, which would be expected to pursue stronger regulations, which would have higher influence on risk-averse sentiments in the short term.
Institutional involvement and market structure
In recent years, more and more large financial institutions have become involved in both forex and crypto markets. This shift has been adding another layer of complexity to how policy shifts affect market dynamics.
With various large companies launching crypto trading desks, and many traditional forex trading platforms offering crypto derivatives, there is a clear institutional interest. This could influence policies about trading restrictions and tax incentives, as an increase in regulation could foster a move away from institutional participation, especially if compliance costs rise.
Forex trading platforms and crypto exchange prepare for changes
The potential shifts that both traditional and crypto-focused trading platforms can face are taking up a lot of space these days. For forex brokers, there is an increased margin requirement in anticipation of heightened volatility. For crypto exchanges, there might be a need to enhance their compliance capabilities in case of new regulations.
Such readiness and anticipation from both types of trading platforms is fostered by the expectations to some policy-driven changes in the light of the election outcome. It could impact factors such as trading fees, margin requirements, and access to specific assets, but this would depend on the approach of the Trump administration.
Concluding remarks
As it is becoming evident in the light of the results from the U.S. presidential election of 2024, the global financial market will be impacted. This is also underscoring the deep connection between politics and market performance, also when it comes to the forex and crypto sectors. For the forex market, it is expected to see potential shifts in trade policy, interest rates, and inflation, which will have wide reaching consequences for the global market. The crypto market is facing regulatory uncertainty and an evolving investor sentiment, especially in the light of the anticipated positive stance the Trump administration will take on cryptocurrencies and their implementation and utilization in various markets and sectors.
It will be of great interest to see how the Trump administration will stance on issues related to digital asset regulations, international trade, and fiscal policies. All of these are playing key roles in shaping the landscape for online forex and crypto trading in the four-year long presidential period. For both investors, traders, and platforms, it is important to stay flexible and be prepared for a future which currently is full of high requirements for rapid adaptation, regulatory challenges, and new opportunities for growth.
