MCS | Biden's Victory, The Beginning Of The USD Bear Market?

MCS | Biden's Victory, The Beginning Of The USD Bear Market?

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In the 2020 US presidential election held in early this November, Joe Biden from the Democratic Party was chosen as the next president of the USA. This triggered a rapid decline of the value of USD, and a sharp incline of currencies in emerging economies such as South Korea and China.

Source: Investing.com
Source: Investing.com

Looking at the charts above, starting from November 3rd, the date of the US presidential election, the value of the RMB and KRW against USD rapidly increased.

The victory of Joe Biden has removed some of the political uncertainty of the Trump administration with the notorious 'Twitter politics'. It is acting as a positive sign in the financial market, which avoids uncertainty the most, and Wall Street is also rushing to release reports recommending investments in superior emerging countries, mainly in South Korea.

In fact, the stock market in Korea is net buying for 9 consecutive days, showing formidable strength among the currencies of many emerging markets.

The exchange rate market believes that there will be changes in the US-China conflict, which has hit a peak during Trump's tenure. Joe Biden is also likely to continue the pressure on China, but it is likely to take a more flexible approach through negotiations different from what Trump did. Looking back on the past US-China negotiation process, China is highly likely to respond to these negotiations by appreciating the RMB and opening the market.

In addition, Joe Biden is likely to draw out a massive stimulus card. Large bond issuances widen the deficit and put the USD under weak pressure.

At the same time, as Pfizer and Moderna announced results that exceeded market expectations regarding the vaccine for COVID-19, expectations for the market and economic recovery are gradually rising.

Eventually, as the uncertainty is removed, the preference for safe assets is expected to decrease, and investment sentiment for risky assets will rise.

Source: Investing.com

Even if you look at the price flow of gold, one of the representative safe assets, you can see that the price has fallen sharply since the presidential election. This can also be seen as a sign of a rising preference for risky assets over safe ones.

Unless uncertainty rises in the market and preferences for safe assets rise again, the bearish market for USD is likely to continue.

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