How the 2024 U.S. Election Could Shake Up Currency Markets: What Your Business Needs to Know

The 2024 U.S. Presidential Election is a critical event with significant implications for the global economy, financial markets, and businesses engaged in international trade. As the election approaches, businesses will need to navigate potential economic shifts and currency market volatility that often accompany political uncertainty. The outcome of the election will have profound effects on U.S. fiscal, monetary, and trade policies, all of which influence foreign exchange (FX) markets. Understanding how different political outcomes might impact currency movements is crucial for businesses operating across borders.

Created by Xe’s currency experts, the US Election Guide equips businesses to anticipate and manage potential currency market fluctuations during this critical period. It highlights key scenarios and risks, offering the insights needed to navigate uncertainty effectively.

Political and Economic Context of the 2024 U.S. Election The 2024 election comes amid economic uncertainty influenced by key factors: 

• Inflation and Interest Rates: Ongoing inflation since 2021 has prompted the Federal Reserve to raise rates. Interest rate changes will significantly affect currency markets, particularly the U.S. dollar’s strength. 

• Global Trade and Geopolitical Tensions: Trade disputes, including U.S.-China tensions, Russian sanctions, and EU relations, continue to drive currency volatility. Businesses must prepare for potential trade barriers and policy changes. 

• Fiscal Policy and Debt: Rising U.S. debt and possible post-election fiscal changes will impact investor confidence and currency markets, influencing the dollar's value. 

Potential Election Outcomes and FX Market Implications The 2024 election could lead to two main policy directions: continuity and international cooperation or deregulation and protectionism.

Scenario 1: Continuity and Multilateralism 
If current policies continue, businesses might see stable trade relations and multilateral negotiations, reducing currency volatility. The U.S. dollar’s value would be influenced more by macroeconomic factors like interest rates rather than abrupt policy changes. A steady fiscal and monetary policy approach would likely maintain investor confidence in the dollar.

Scenario 2: Deregulation and Protectionism 
A shift towards deregulation, tax cuts, and protectionist trade policies could increase FX market volatility. Potential new tariffs, especially with China, might disrupt global supply chains and cause significant currency fluctuations. Corporate tax cuts could boost investment and strengthen the dollar initially, but higher deficits and inflation risks might weaken it later. Companies must be prepared for volatile FX rates and adjust their strategies accordingly.

Key FX Market Considerations for Businesses in 2024

1. Monitoring the Dollar’s Trajectory 
The U.S. dollar plays a central role in global trade and finance. As the 2024 election approaches, businesses should closely monitor economic indicators such as interest rates, inflation, and GDP growth, which directly impact the value of the dollar. Uncertainty surrounding the election and its potential outcomes will likely contribute to short-term volatility. Businesses can expect shifts in the dollar’s value depending on the election results, especially in relation to other major currencies such as the euro, yen, and yuan. Increased volatility in the dollar could have wide-ranging implications for industries with international exposure, including exporters, importers, and companies with significant foreign-denominated debt. Businesses should prepare for potential fluctuations by regularly assessing their FX risk exposure and adjusting their financial strategies as needed. Sign up to our rate alerts so you can secure the best rates for your business.

2. Hedging Strategies for Currency Risk 
Given the potential for election-related volatility in currency markets, businesses should consider implementing or refining their FX hedging strategies. The use of financial instruments such as forward contracts, options, and swaps can help mitigate the impact of unfavorable currency movements on revenues and profits. Key hedging strategies include: 

• Forward Contracts: These allow businesses to lock in exchange rates for future transactions, providing protection against adverse currency movements. This is particularly useful for companies that rely on predictable cash flows for budgeting purposes.

• Options Contracts: Currency options provide businesses with the flexibility to hedge downside risk while maintaining the opportunity to benefit from favorable currency movements. This strategy is especially useful in uncertain market conditions.

• Diversification of Revenue Streams: By diversifying revenue sources across multiple currencies and regions, businesses can reduce their reliance on any single market or currency. This natural hedge can help offset the impact of currency fluctuations on overall profitability.

3. Diversifying Supply Chains and Markets 
The possibility of new trade barriers or tariffs resulting from the 2024 election underscores the importance of diversifying supply chains and international markets. Businesses that rely heavily on a single country or region for supplies or sales may be particularly vulnerable to changes in trade policy. To mitigate risk, companies should explore alternative markets and suppliers in regions less affected by potential trade disruptions. 

For example, businesses with exposure to China or Europe may need to consider diversifying into emerging markets such as Southeast Asia, Latin America, or Africa, where currency risk may be less tied to U.S. trade policy shifts. This approach can help mitigate the impact of currency volatility and trade policy changes on operating margins. 

4. Staying Informed on Global Economic Developments 
The outcome of the U.S. election will be just one factor affecting currency markets in 2024. Other global economic developments, such as the ongoing conflict in Ukraine, energy market fluctuations, and changing economic conditions in China and Europe, will also play critical roles. For businesses, it is essential to stay informed about these developments and incorporate them into their FX strategies. 

For example, changes in energy prices may influence commodity-linked currencies such as the Canadian dollar or Australian dollar. Similarly, shifts in European economic policy or monetary easing in Japan could affect major currency pairs like USD/EUR or USD/JPY. Businesses must stay agile and adapt their currency risk management strategies as global conditions evolve. 

In conclusion 

The 2024 U.S. election presents both risks and opportunities for businesses engaged in international trade and investment. The outcome will shape U.S. economic, fiscal, and trade policies, which will, in turn, influence FX markets. By closely monitoring the election’s potential impact, adopting effective currency hedging strategies, and diversifying supply chains and markets, businesses can better navigate the uncertainty and position themselves for success in a rapidly changing global landscape. 

With the US elections approaching and potential market fluctuations ahead, trust Xe, the world’s leading currency experts. Backed by real-time data, our global currency team is here to safeguard your business and guide you confidently through currency shift. 

We’re fluent in currencies so you don’t have to be. Get in touch with one of our Currency Experts today!

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Save the Date

Post-election webinar: 12 November 2024

Join us for our post-election webinar on 12 November, “______ has won the US Election — Now What?”, where currency experts will break down the election results and provide actionable insights on navigating FX and currency market volatility. Don’t miss this opportunity to prepare your business for the post-election landscape.

The content within this blog post is not intended for use as financial advice. This content is for informational purposes only.