Synopsis:

Following President Joe Biden's withdrawal from the presidential race, Credit Agricole explores the potential impact of a Trump defeat on the USD. While a younger Democratic candidate could challenge Trump more effectively, Credit Agricole's central scenario still anticipates a Trump victory. They expect the USD to remain bullish in the next 3 to 6 months but foresee a potential Democrat victory leading to a USD sell-off similar to the post-2020 election scenario.

Key Points:

1. Current Expectations:

   • Trump’s Chances: A Trump victory remains the central scenario for Credit Agricole, especially if the GOP gains majorities in both houses of Congress.
   • USD Bullishness: The USD is expected to be bullish in the next 3 to 6 months, focusing on the positive aspects of a Trump presidency.

2. Potential Trump Defeat:

   • Biden’s 2020 Victory as a Template: Post-2020 election, the USD sold off by over 4%, despite a rally in UST yields due to expectations of a less protectionist trade policy under Biden.
   • Democratic Victory Impact: A Democrat win in November could result in a less protectionist US trade policy, a less supportive fiscal policy stance, and a potential USD sell-off.

3. Economic and Policy Considerations:

   • US Economic Outlook: A less supportive fiscal policy could negatively impact the US economic outlook.
   • Inflation and Fed Policy: A softer inflation outlook could trigger aggressive Fed rate easing, further weighing on the USD in 2025.

Conclusion:

While Credit Agricole maintains a central scenario of a Trump victory and expects USD bullishness in the short term, a potential Democrat victory could lead to a significant USD sell-off. This would be driven by expectations of a less protectionist trade policy, a less supportive fiscal stance, and potential aggressive Fed rate easing, echoing the post-2020 election market response.