In this article we will analyse the upcoming US Congressional Elections.
Once you’ve read this article, you’ll understand how changes in the US House of Representatives and Senate could affect the US dollar.
This will help you plan long-term trades that involve the greenback.
Specifically, here are the three points traders should know about US congressional elections:
- How US Congressional Elections work
- Why President Trump’s legislative agenda is on the line
- How the results could affect the US economy
How Congressional Elections Work
Later this year, the US will hold Congressional Elections.
This is where candidates contest seats in both the House of Representatives and the Senate.
Specifically, all 435 seats in the House of Representatives are up for grabs.
Only a third of the 100 Senate seats face the public vote.
These elections will take place on Tuesday 6th November.
There are significant implications to these elections – because they can affect how the US government functions.
Why Do US Congressional Elections Matter?
In order for legislation to become law in the US, both the House of Representatives and the Senate need to approve bills.
Let’s explore how this process works.
A bill only becomes law in the United States once it is passed by the House of Representatives, Senate and the President.
A special ‘veto’ is available to the President, should he disagree with the bills that reach his desk.
Proposed legislation passes through these bodies in order.
House of Representatives
In most cases, legislation starts in the House of Representatives.
Any member of the House (typically referred to as a Representative) can propose a bill, providing they have the support of other colleagues.
Bills are vehemently debated between Republican and Democratic Representatives, including in special committees.
Typically, these committees contain a selection of Representatives that investigate niche policy areas, such as education or agriculture.
Once a committee is satisfied that a proposed bill is sound, it will go back to the House of Representatives for a vote.
For a bill to pass the House of Representatives, it needs to secure a majority of votes (218 out of 435).
Once a bill passes the House of Representatives, it then goes to the Senate.
Again, the bill is subject to debate and amendments, as Senators and committees discuss the implications of policy specifics.
Finally, once the bill gets the go ahead from the relevant committee, the bill goes to the Senate floor for a final vote.
It takes 51 votes (from 100) for the Senate to pass a bill.
President of the United States
The final stage of the legislative process involves the President.
He or she needs to sign any bill that passes both chambers of Congress.
Trump’s Agenda Is On The Line
Hopefully, you can now see why political control of the Congress is important.
For its agenda to move forward, an administration needs its party to have majorities.
At the time of writing, this is what President Trump currently enjoys.
Republicans have 234 Representatives and 51 Senators.
However, the November elections could change where control lies.
Majorities in both the House of Representatives and the Senate are finely balanced.
It’s entirely possible that the Democrats could see a swing in their favour.
Should this happen, President Trump could see the cornerstones of his America First agenda held up in Congress.
Clearly, the Democrats are keen to do this.
What Do The Polls Say?
At the moment, it’s far from certain how the elections will unfold in November.
Poll projections are inconclusive and keep changing.
What’s more, recent history suggests polls are far from accurate.
However, there have been a series of local elections since President Trump’s election.
These saw Democrats make considerable gains in Virginia and New Jersey.
But remember, we’re dealing with an unorthodox character in President Trump.
Regardless of whether you agree with his policies, he’s undeniably brilliant at motivating his base.
Having said that, it’s certainly possible that the Republicans could lose control of either the House of Representatives or Senate.
How The Results Could Affect The US Economy
Make no mistake, these elections matter to Forex traders.
The results will determine what kind of US economy we’re likely to see in the coming years.
In turn, this will affect the value of the US dollar.
Democrat Control: Diminished Investor Confidence
When President Trump won the 2016 Presidential Election, investors were excited.
We saw investors shift their capital away from bonds into riskier private equities.
The reasons for doing so are simple and understandable: Trump was promising huge infrastructure spending and lower corporate taxes.
Should Democrats secure control of either the House of Representatives or Senate, infrastructure spending is unlikely to pass.
One example of infrastructure spending is the proposed southern border wall with Mexico.
This is an idea Democrats are aggressively opposed too.
They’ll hold up any proposed legislation on this issue should they gain control.
Republican Control: Political Capital
On the other hand, should Republicans cement control, we’ll see new energy and enthusiasm for the America First agenda.
Republicans will feel that they have the political validation to implement President Trump’s more eye-catching policies, such as the border wall.
As a result, we’ll likely see significant infrastructure spending (of some kind) pass in President Trump’s first term.
Remember, President Trump promised a $1 trillion spending package during the 2016 campaign.
Should this happen, investor confidence – and appetite for risk – will likely increase.
The US Dollar Hates Gridlock
While the outcome of the US Congressional Election is far from certain, one thing isn’t: the US dollar does not like political gridlock.
We just need to look at January 2018 for a recent example.
During the US government shutdown, the Dollar Index fell towards the ’90 level’ for the first time since 2014.
The Federal Reserve
The Federal Reserve could also adjust its rate of hiking interest rates depending on election results.
Republican control makes it more likely that we’ll see inflationary policies passed, which could point to a faster hiking cycle to keep inflation in check.
Conversely, Democratic control might see The Federal Reserve slow the pace at which it increases interest rates, as gridlock will slow legislative progress.
Keep Track Of Polling
Ahead of the November elections, try to keep up to date with what party is likely to perform better.
You’ll then be well placed to judge how the political landscape in the US could affect the greenback.
If you have a question about this article, please leave it in the comments below and we’ll respond as soon as we can.