Goldman Sachs: "We think markets are likely to have enough information within a few hours of polls closing to trade the likely presidential winner, even if there are a few “head fakes” in the early going and media sources take longer to make their call. The full composition of congressional control could take longer to determine, but we think the presidential outcome should take precedence for FX markets because of the tariff implications. In the case of a Democratic win, we see three key elements for the market reaction. First, the market should be able to fully price the implications rather quickly in an outcome that preserves something close to the status quo, especially on trade policy. Second, we think that the alignment between macro news and tariff risks can account for the speed and size of the Dollar’s broad strength in recent weeks and that macro factors in the US and abroad can account for most of the moves in spot markets, with the election playing an important but supporting role. As a result, we think Democratic victory trades should be struck at very short tenors and target moves that retrace only a part of the Dollar’s strength over the last six weeks. While there would likely be some overshoot, this would likely push EUR/USD back to around 1.0950 on our models. 

We would also expect a partial, and somewhat larger, reversal in MXN, CNH and other China-sensitive currencies. Finally, and most importantly, our main expectation under a Democratic outcome is that FX markets should revert relatively quickly to trading the current macro backdrop rather than political developments. In the current context, that means the Dollar should remain relatively well-supported following the initial reaction; recent economic data have generally been stronger in the US, abstracting from recent hurricane disruptions, and we think next week’s Fed meeting will reinforce a gradual adjustment process. In the case of a Republican victory, our tariff scenarios make room for substantial Dollar strength in the medium term. As we previously discussed, CNY could weaken to around 7.40 under our economists’ baseline scenario for increased US tariffs on China under a Republican government. Historically, CNY has moved on tariff announcements rather than on speculation. Further, it is possible that policymakers would be wary of a potential “double dip,” with depreciation pressures likely to build on an actual tariff announcement regardless of how much CNY is allowed to move now. A more constrained move in the Yuan anchor on Election Night (to around 7.25-7.30) should provide some stability to Asian FX."