The 46th US Presidential Election in 2020 has been the focus of market players lately. The US stock index has risen for 6 consecutive days since the US-China trade war began to subside, but this situation has been accompanied by a weakening of the US dollar exchange rate for the past 2 weeks.

Many factors have caused the weakening of the US Dollar currency lately, especially the issue of President Trump's impeachment by parliament for allegedly abusing his power by pressuring the Ukrainian government to investigate the son of his political opponent Joe Biden.

This week the impeachment decision will be announced so that President Trump yesterday sent a 6-page letter criticizing Nancy Pelosi, that she was trying to overthrow his presidency. Here are four scenarios, starting with that nightmare. Hopefully, a long process is avoided or at least followed by a clear result. That's where the other three scenarios apply.

1. Contested Election

If Biden and Trump claim victory, the courts will be overwhelmed with lawsuits in all the contested states with markets suffering from their worst enemy, uncertainty. Stocks will fall amid ongoing political paralysis as the clock ticks down to January 20th, inauguration day.

A more divided country poses risks to the economy and could send stocks lower. Gold could also follow equities lower. Precious currencies have not proven to be safe havens in recent months, instead trading in tandem with equities or inversely correlating with the dollar.

The US dollar and also the yen would likely be the biggest beneficiaries in this scenario. Given the tight race, there is a high probability of this outcome materializing.

2. Biden Wins, Republicans Hold Senate

This is probably the most likely scenario based on current polls and could unfold once all votes are counted and received. In this case, stocks have room to enjoy a relief rally as Biden will pursue more trade-friendly policies while Trump will be unable to enact his agenda.

The safe-haven dollar will likely lose its luster, especially if this outcome comes after a tense few weeks. Meanwhile, gold will have limited room for relief. The lack of new fiscal aid means less money to fund the precious metal’s rally.

3. Clean Sweep for Democrats

If Biden wins the presidency and the Democrats flip the Senate v- they are projected to hold the House easily and stocks will eventually fall as well. The reason is that the market will be concerned that left-wing lawmakers like Elisabeth Warren, Bernie Sanders, and Alexandra Ocasio Cortez will push for regulation and tax increases.

While equities will fear market-unfriendly policies, gold will cheer the prospect of massive fiscal stimulus, especially if Democrats agree to a broad “Green New Deal” to combat climate change. The mix of cash from the government and the Federal Reserve will likely send XAU/USD higher.

The US dollar will fall in this massive spending scenario. Some of those funds will leave the US for other markets. This scenario has a medium probability, as the Senate race is close. Vice President Kamala Harris in this projection has the right to break a tie in the event of a Senate tie.

4. Trump Wins

If the president repeats his 2016 victory by reaching 270 electoral college votes despite losing the popular vote, stocks could potentially rally in a business-friendly status quo market. That could also be positive for gold, as Trump would feel reinvigorated to push his fellow Republicans for further fiscal stimulus after receiving a mandate from the people.

House Democrats would likely agree to more spending. For the dollar, that would be detrimental, as fears would ease. Again, the dollar’s ​​decline would come from higher levels if the process takes a long time. The likelihood of that is low as Trump trails in the polls.

Conclusion

There is an increasing likelihood that America will find out who its president will be only in late November. A tense period could be positive for the dollar before it eases once the result is clear. Gold is dependent on fiscal stimulus, which would come with a big Biden win or a Trump win. A change in the White House without Congress would hurt the precious metal but be positive for stocks.

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