President Biden’s foreign policy: Expected impact on forex markets

Author: Forex Live | Category: Education

Analysing the impact of Biden's foreign policy

ROI
Invest in yourself. See our forex education hub.

Forex trading and forex markets are impacted by other factors taking place in other spheres. Forex markets are open to the influence issuing from macroeconomic factors.

Understandably, there's the effect of foreign policy as well. Forex rates are invariably exposed to changes as a result of changes in international relations. President Biden's foreign policy directives are going to have a massive influence on the way traders trade. 

The effect of elections on currency prices

Elections can often be viewed as portents of political instability. Traders might associate them with increased volatility. A change in administration impacts fiscal and monetary policy. This clearly shows how close-knit the units of Business, Government, and society are. 

A currency's relative value appreciates when traders perceive the imminent election of a pro-economy incumbent.  Conversely, fear of loss of position of power in the case of an incumbent who is demonstrably pro-economy can lead to a slumping relative value. 

The EUR/USD pair was buoyed up as the inauguration approached. The pair corrected to the upside, stabilising in the vicinity of 1.2155 resistance level. 

Traders are always wary of political instability. 

Basic valuation factors and valuations keep unstable factors in check. Currencies' relative value settles around an indicative rate that reflects the nation's growth prospects over the long term. It is also strong fundamentals that can redeem President Biden's confidence in the $1.9 trillion dollar pandemic package.

 A bump facilitated even Asian markets following the inauguration. The Nikkei Index in Tokyo closed at 0.8% higher. The Australian S&P/ASX index rose 0.7%. While the Shanghai Composite Index climbed more than 1% , the Seoul Kospi index gained by 1.4%. 

All American indices were experiencing higher trending futures trading. 

How natural disasters impact currency prices

President Biden has had to inherit the COVID 19 pandemic factors over from the preceding administration. Documentation of how the global pandemic has affected economies is ongoing.  Infrastructure, value chain, consumer spending, and consumer confidence have all been influenced by government response to the threat. President Biden has a blueprint for dealing with the pandemic that will lessen the burden on traders and ancillaries. 

President Biden, starkly in opposition to his predecessor, is treating the COVID 19 pandemic as a national emergency. President Biden has assigned to federal agencies the responsibilities they were meant to shoulder in response to a national crisis. The new administration is facilitating coordination between public health and emergency response bureaucracies. 

Rise & Rise of the USD

Forex traders are betting on the US Dollar climbing her as a result of the announced pandemic stimulus package. In the week preceding the inauguration, the US Dollar index had breached a plummeting wedge on a daily time-frame. Such a breakout is rightly expected to have 100% retracement as the target price. This put the price in the vicinity of 94.55, this being the 382% Fibonacci retracement of the March 2020 highs down to the January 2021 (first week) lows. The price breached strong horizontal resistance in the neighbourhood of 92.17. 

Rather than allow the value of the USD to go lower, the forward-looking markets may well accomplish the opposite. 'Selling the rumour, buying the fact', the US Dollar will gain in relative value in 2021. ROInvesing is closely watching the USD and will ensure safe, profitable investing in the currencies market. 

How war affects currencies 

President Biden is expected to maintain and expand America's power throughout the world. War preparedness and the use of diplomacy to prevent military tensions are on the top of the President's agenda. Even if the war does not come home to the USA, the repercussions thereof will be felt on NASDAQ regardless. 

Rebuilding after a major war implies lowered interest rates. This diminishes the currency's relative value. 

Arms stocks will continue to rise 

The military-industrial complex, however, suggests that war is a beneficial catalyst to the building of many national economies. President Biden's bete noire President Putin has been able to stay in power thanks to masterful manipulations of his team's Russian military-industrial complex. 

Under President Biden, the military-industrial complex as obtained in the US will see further impetus. Within 2 months of his administration, President Biden has passed directives seeking the rebuilding of existing alliances. For instance, to the end of stymying Russia's growing clout in the Arctic, the Biden administration has facilitated the sale of B-1 bombers to Norway. 

This shows that arms manufacturers can expect to remain a vital part of the US economy well into the future. 

The Biden administration has approved the sale of billion-dollar naval guns to India. This can be seen in the light of Quad's containment of China. 

The US Defense industry is in fact more vital to American economic health than one would care to admit. Besides armaments, the offshoots of valuable R&D flood the market with varied products. These include IT products, as also those related to analytics, robotics, cybersecurity, and intelligence systems. 

President Biden is leading the world to another Cold War. arms stocks - Northrop Grumman Corp, Lockheed Martin Corp, and a host of others - are blue-chip stocks. Not surprisingly, arms stocks soar when military tensions rise. 

Even as Iran was vowing revenge for the assassination of its second-most important military commander (General Soleimani), Northrop Grumman stock price rose by 5.43%. 

This line of thought ends up supporting commodities and allied markets as well. The crux of the Arctic matter is - who will access the vast mineral wealth of the Arctic when the ice melts even further? Developments in the Arctic Theatre will influence oil prices; for instance. 90 billion oil barrels, 1669 trillion cubic feet of natural gas, besides 44 billion natural gas liquids are at stake up there in freezing weather. 

However, the conundrum of the countries involved is that an actual war must always be avoided in the end. 

President Biden's priorities: An overview 

The US President has to weigh his words before they are uttered. What the American President does and says reverberate globally. China has posited a powerful challenge. The US and allies must coordinate their cooperation to out-innovate the Red Giant. The authoritarian power has shown marked efficiency in controlling the pandemic within China's borders. The US and allies cannot yet say the same - they must tighten their belts to outperform China in various areas. 

Some suggest that the watch-word for 2021 is 'constraint'. Then, the President must find ways to navigate around the same. 

Containing Authoritarianism

There are two major powers facing the US: China and Russia, in that order. China has demonstrated it can carry out its policy objectives with impunity. It could be argued that China (and Russia) have the West on the back foot. In order to pose a credible challenge to the authoritarians, President Biden must set the US house in order. Thus the emphasis on 'unity'. 

Besides a united front, the President is also going to direct the correcting of fractured alliances, especially with respect to Germany. 

President Biden's evolving response to US -Saudi ties suggests more assertiveness on America's past. Not only will Biden not stand for aggression from China and Russia, but in his capacity as chief helmsman of the ship of State, he reins in the Saudis progressively. This will play out juxtaposed with Iran nuclear deal conundrums and US-Israeli relations. 

Clean energy & electric car stocks : The wave of the future

Some may argue that a moral stand could stem the tide of Authoritarianism the West faces. An example is the difficult moral choice that President Bioden has already made. His pledge to support the cutting of carbon emissions while helping climate change goals is strengthening Russia oil and gas companies (albeit temporarily). Lukoil, Tatneft, and Rosneft are going to win in the securities market. 

This will continue till the US has viable rivals in clean energy. Biden is spearheading the drive to make 70% of the world carbon-free by 2050. He has instructed federal agencies to purchase electric cars. The 12-month trailing total return for major electric car stocks is in four digits (in percentage). 

Conclusion 

Just two months into his presidency, President Biden has toughened America's stand against traditional rivals. He has also shown a strong inclination to rebuild alliances ( in the case of Germany), and forcefully persuade allies going astray (the Saudis in Yemen). With his focus on fostering 'unity', forex markets can expect forward-looking trends to continue. 

The US Dollar is expected to rise in relative value. The President's support to new sectors - clean energy, electric cars - will lend the impetus to drive those stocks upward. Only aggressive China's continuing innovation can be a check on this President's policy administration. ROInvesting has the tools, applications, and platform to meet all your expectations.


By continuing to browse our site you agree to our use of cookies, revised Privacy Notice and Terms of Service. More information about cookiesClose