International economic outlook: Presidential election remains a close call

Summary

Forecast changes

• Leading into U.S. elections, we are not assuming any presidential or congressional voting outcomes. However, should former President Trump win the White House, regardless of the congressional mix, we would become more positive on the U.S. dollar. On the other hand, a Harris victory would likely lead to a relief rally that is supportive of foreign currencies and results in temporary dollar depreciation.

• We forecast more aggressive monetary easing from several G10 central banks. The European Central Bank, Bank of Canada, Swiss National Bank, Riksbank and Reserve Bank of New Zealand are among those where we forecast faster and/or more pronounced rate cuts. In contrast, we now anticipate a slower pace of Fed easing. In Brazil and India, stronger inflationary pressures should now lead to policymakers pivoting to rate cuts later than we previously thought.

• We forecast more long-term U.S. dollar strength than previously. Faster foreign central bank easing and underwhelming sentiment toward China should weigh on G10 and emerging market currencies in 2025 and into 2026. Among the G10 currencies, we see a weaker outlook for the euro, Canadian dollar and New Zealand dollar, while we have revised our outlook for emerging market currencies lower to reflect a further economic downturn in China and gradual Fed easing.

Key themes

• While the presidential election remains a close call and the post-election policy outlook uncertain, trade and fiscal policy will be in focus regardless of which candidate wins the White House. A Trump victory could lead to more contentious tariff policy—particularly with China—while trade policy may be less hostile in a Harris administration. The next administration will also need to make decisions around the expiring provisions of the Tax Cuts & Jobs Act (TCJA), which could have significant implications for the public finance position of the U.S. government.

• Regardless of who wins the White House, the long-term path of the U.S. dollar will be dependent on monetary and fiscal policy. We observe no discernible pattern in the dollar based on which political party is in the White House; however, dollar patterns are apparent based on U.S. and global economic trends as well as Fed and fiscal policy. Market reactions in the immediate aftermath of the election should be temporary, with the long-term direction of the dollar ultimately influenced by Fed interest rates and broader economic policy.

• Our outlook remains for U.S. dollar strength through most of 2025 and 2026. Faster easing from G10 central banks should weigh on foreign currencies, while over the medium term, stronger U.S growth and a slowing and eventual end to Fed easing should also support greenback gains. We expect 2025 to be a difficult year for most emerging market currencies against a backdrop of a less dovish Fed, strong U.S. growth and underwhelming economic performance from China. We expect currencies sensitive to China—particularly “high beta” currencies—to underperform.

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