The US dollar is poised to be the first asset to signal what markets think the election result will be. With its strong liquidity and global 24-hour trading activity, the dollar is a reliable indicator of market sentiment. A Trump win could boost the dollar, while a Harris victory could lead to the greenback weakening.

Unlocking the Dollar's Predictive Power in the Election Aftermath

The Dollar's Liquidity and Transparency

The US dollar is the most liquid and transparent asset class when it comes to signaling the likely winner of the US presidential election. As Raymond James' chief investment strategist David Zervos explains, the dollar "will be the most liquid and the most transparent messaging to what we are getting markets to do because that's where people could put money to work fast." With the dollar traded 24/7 around the world, it will be the first asset to react to the incoming election results, providing a real-time barometer of market expectations.

The Dollar's Reaction to a Trump or Harris Presidency

The dollar's performance could offer valuable insights into the market's assessment of the election outcome. Zervos suggests that a rising dollar would likely indicate a Trump victory, as his proposed tariff policies could lead to higher interest rates and a stronger greenback. Conversely, a falling US dollar would signal that the market is pricing in a Kamala Harris win, as her administration is expected to maintain a dovish monetary policy, putting downward pressure on the dollar.

Monitoring the Dollar-China Relationship

Beyond the broader US dollar index, Zervos emphasizes the importance of closely watching the dollar's movement relative to the Chinese renminbi. "Dollar-China has been a big trade because people saw that as a real Trump winning trade, meaning he's going to go hard on China," Zervos said. "That's got a lot of crowded positioning in it. I'd be watching dollar-China very closely overnight."

The Dollar's Impact on Risk Assets and Investments

Zervos expects a relief rally in risk assets as the uncertainty surrounding the election begins to fade, assuming the results are decisive and known relatively soon. "I think people really want to see smoothness here, then we can just see risk assets do better, we could see credit do better. We could see the panicky trades that people might have put on get pulled off," he said. Ultimately, Zervos will adjust his stock and bond investments based on the dollar's reaction to the election results, as the dollar's movements will guide his investment decisions.