No election will be more heavily scrutinized than the US vote in November. On the surface, at least, this might suggest that it has the most scope to disrupt financial markets. But is this really the case?

While there might be many column inches devoted to the domestic and global implications of a second term for former president Trump, we are sceptical that the election outcome is all that important. To take an example; when Trump lost the 2020 election to Joe Biden it led to all sorts of accusations of fraud from the Trump camp, culminating in the insurrection on Capitol Hill on January 6th 2021. That was the point when the standing of US democracy can hardly be thought of as being in worse shape.

And yet, it was exactly the point at which the US dollar started to rally and, eighteen months later had climbed by over 25% against other major currencies. In other words, it did not seem as if the rest of the world was particularly put off by the US’s decent into near anarchy on Capitol Hill.

Mr. Steve Barrow, Head of Standard Bank G10 Strategy rather doubts that the reaction would have been the same had any other country seen such political upheaval, and faced the possibility of a return of the chief instigator four years later. Should November’s election descend into another such farce is there more reason to fear for the US dollar? Mr. Steve Barrow is not so sure.

Another point to make is that it is not as if the Trump administration, or the subsequent Biden-led government, has been courting foreign investors. To the contrary, the diet of protectionism, especially with regards to inward direct investment from China, seems to have failed to undermine the greenback. And that’s in spite of the fact that the US is a huge debtor to the rest of the world and that some countries – notably China – have been scaling back their holdings of US assets, such as treasuries, quite considerably.

Yet another argument Mr. Steve Barrow would make is that, in the years since Trump departed the arguments around things like de-globalisation, US protectionism, and the re-shoring or friend-shoring of supply chains has changed. What was once seen as anathema to financial prosperity – and presumably currency strength –is now looked upon more favourably.

In fact, this new-found deglobalisation and protectionism only adds to the allure of the US and the dollar because the US was already a pretty closed economy, meaning that its trade is a comparatively small proportion of GDP. The ones that have suffered in recent years have been the more open economies; especially those with traditionally strong trade sectors, such as Germany. So, if Trump does win the Republican nomination and it he does push protectionist policies again, such as a 10% tariff on all goods coming into the US, as has been suggested, will the dollar bulls’ recoil? It does not seem likely.

One other point we have made in the past is that the dollar was pretty stable during the Trump years in office, which is not something that could be said about the performance of the greenback during previous Republican presidencies. Before that, this slide in the dollar under previous Republican presidents has largely been because US economic performance under Republican presidents has been worse than under the Democrats. But Trump, with his laser-like focus on the US and seeming disregard for international politics, or at least international trade politics, seemed to break the mould. Hence it might not be unreasonable for the market to assume a mould-breaking period of US economic outperformance were he to win in November.

But does all this suggest that the US dollar will rally in 2024? All we would suggest is that the prospect of a Trump run at the White House, and even victory itself, is not a reason for the dollar bulls to give up. But there are other headwinds for the US dollar, such as the prospect of easier Fed policy and, at the end of it all, it is this that’s likely to have the biggest say over the US dollar, not the election.