Second Presidential Debate and Presidential Policy: How will it affect the dollar

23 October 2020

The second and final presidential debate last night was the last time that both candidates could address US voters directly, and the pair traded blows on Coronavirus, Healthcare and Foreign policy. The event was much more civil than the first chaotic debate thanks in part to the introduction of a mute button but also a change in tactics from the President who was visibly more restrained.

The debate started on the topic of Coronavirus, which according to polls, remains the topic that American voters care most about. Trump said that the US was close to a vaccine “in weeks”, but Biden pounced when Trump said that people are learning to live with the virus, by countering that people are learning to die with it. The debate then turned to foreign policy, where President Trump once again brought up Hunter Biden’s corruption allegations, in an attempt to drag the former vice-president but Biden managed to tactfully turn attention back to Trump by discussing his tax returns and his cosiness towards “thug” Kim Jong-Un. Trump came off worse when discussing immigration and race relations, where Biden attacked him for putting migrants in cages, but Trump did manage to shift some blame onto Biden for his part in building the cages during the Obama administration. Finally, Trump had a major win on the last topic of the night, energy. Biden let slip that he would transition from the oil industry, which Trump seized on calling it a big statement and will not help Biden’s cause in Pennsylvania, a large swing state, and Texas which are reliant on Oil and natural gas.

In the aftermath of the debate, the dollar fell against most major currencies. This is likely because markets have priced in a Biden ‘blue wave’ and the debate passing without incident marks another key event that Biden has survived and increases the probability that Biden will be elected the new President, come 3rd November. EURUSD is currently up 0.4% since the start of the debate, while GBPUSD is up only 0.1%. US equity futures have also jumped up and S&P Futures have increased by 0.2% in early morning trading today, to match the current global risk-on mood.


As election day looms ever closer, investors are curious to know what policies a Trump and Biden presidency would enact when in the office. The most pressing matter, especially in the short term is Fiscal Policy. It is increasingly likely that a fiscal stimulus package will not be passed by the senate before the election, which means that negotiations may have to start again, if there is a significant change in the make-up of the House and Senate. If the widely predicted, ‘blue wave’ does take place, then Congress will have no problem passing a hefty stimulus bill as well as increasing corporate taxes to try and stem the widening fiscal deficit. Biden will also look to increase regulation especially on big tech and banks. This is very dependant on the Senate, as with a Republican majority, it is unlikely that Biden would be able to push through severe fiscal measures and tax hikes would be halted. Under Trump, fiscal policy would follow a status-quo approach, where a thin fiscal stimulus bill would be passed, and tax rates would be kept very low. Trump may also look to deregulate further, and he has also pledged ten million jobs months in ten months to get the economy back on track.

Foreign policy is also another major concern, as under Trump, the US has escalated tensions with China, Iran and to a lesser extent Europe. He has also quit the Paris Climate Accord and the Iran Nuclear deal. If re-elected, he has pledged more tariffs on China which will further increase tensions and would reduce troops in the Middle East. Biden will look to erase Trump’s blueprint on foreign policy by re-joining the Paris Climate Accord, the Iran Nuclear deal as well as adopting warmer relations with Saudi Arabia and China. Biden does see China as a threat, and it is not known whether he will leave all of Trump’s tariffs on Chinese goods, but it is unlikely that he will add more.

As mentioned, in the second presidential debate, a Biden presidency would be a catalyst for investment into renewable energy and a transition away from fossil fuels. Biden also wants to reach net zero emissions by 2050, and is set to fund green energy investment, to the tune of approximately $2 trillion. Trump, on the other hand wants to expand non-renewables, to keep his voter base happy. Trump also wants to repeal the Affordable Care Act (ACA) and reduce drug prices by importing cheaper ones, while Biden wants to expand healthcare coverage and lower the age eligibility for Medicare.


The market consensus is that regardless of who wins the election on 3rd November, the dollar is likely to fall in value. This is because the dollar is overbought due to its use as a safe haven, and as global appetite for risk increases, investors will look to move into riskier currencies. In the immediate term, the dollar could rise if Trump manages to secure the presidency as this will be against market expectations and investors will look to hold back from riskier investments. In the short term, i.e. the first few months after the election, the dollar will be affected by the size of the fiscal stimulus package. Under Biden, the dollar is expected to fall more as the size of fiscal spending will be larger contributing to an already large deficit. Going forward, analysts expect a Biden win to help Asian currencies and equities due to lowering tensions in the area, although a Trump win could help Japan. Historically, US equities increase by more during a Democratic presidency compared to a Republican presidency, so US equities are expected to increase if Biden gets elected and the investors have established that a ‘blue wave’ will be good for global equities because it means that corporations will benefit from more fiscal stimulus, more than they lose from increased corporate tax rates.

The final presidential debate has now passed without much incident, and there are now very few undecided voters left, with 40 million people already having voted via mail-in ballots. Both candidates now only have 11 days of campaigning left and President Trump will be hoping for a substantial lift as he is reportedly 7.9 points down in the polls.