US political risk coming into focus - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that while we can see increasing inflation risks and rising US rates supporting the USD, the USD faces its own event risk with the approaching mid-term elections.

Key Quotes

“Despite the booming US economy, President Trump continues to court controversy and enrage much of the community.  There is a risk of a ‘blue wave’ backlash against him that could sweep Republicans out of power in Congress come the mid-term elections.”

“My capacity to predict the US elections is no better than figuring out Brexit or US-China trade relations.  Predictit.org that derives probability from trading in political events shows an increasing probability that the Democrats take control of the House (70%).  However, it still has the Republicans as favoured to control the Senate (73%).”

“If Republicans retain control of the Senate, the market may not fuss too much. But if Democrats were to take control of the Senate and the House, then it will raise fear of political turmoil, including fear of historic moves to remove Trump from office, and intense pressure on the whole framework of government in the US.”

“Certainly, the US establishment and media would be in a frenzy. And it would be hard to predict the fallout in global financial markets.”

“Considering the passions in the US electorate, we cannot discount the risk that Democrats take both houses in Congress. The results can swing on only a handful of races considering the balance is only 49/51 in the Senate.”

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