For all their drama, presidential elections typically have very little impact on the economy’s near-term direction, and often leave exchange rates effectively unmoved.

But in 2024, the stakes for currency markets will be higher. In early campaigning, Donald Trump – the presumptive Republican nominee – has threatened to apply a “universal baseline” ten-percent tariff on all imports – a step that could inflict damage on the dollar’s major counterparts in a repeat of the dynamics seen after the vote in 2016. We think volatility term structures in foreign exchange markets will develop kinks around November’s polling date as the year progresses, with the March party primaries serving as a catalyst for position adjustment.

Duties as a share of imports for consumption, %