Investing.com – The upcoming US election could prove to be a fork in the road for the dollar, with a Trump victory likely to initially strengthen the dollar, while a Harris victory could trigger short-term weakness, but experts caution against betting that any immediate news – result is likely to continue in 2025

“It would be wrong to assume that the post-results reaction will continue to set the tone in 2025. The currency market can stop or reverse this initial move in a number of ways, for example if actual policy outcomes are not as expected or if other factors replace political forces as key currency drivers,” HSBC analysts wrote in a note on Friday.

The bank outlined several scenarios and their potential impact on the dollar, including Republican reform that would facilitate more fiscal stimulus, seen as the most bullish for the dollar in the brief term.

“The dollar is likely to rise sharply if there are signs of future fiscal stimulus that moderates market expectations for Fed easing in 2025.” HSBC said, adding that higher trade tariffs will also support the dollar, especially if they sustain inflation expectations.

Analysts added that in a divided government, a Trump presidency would still likely trigger an initial dollar rally, but that scenario lacks the expectations for fiscal easing that a pristine transition would bring.

However, Democrats’ pristine approach could lead to a “slingshot path” for the dollar, with initial weakness potentially reversing in 2025 as markets price in various forms of fiscal stimulus.

A Harris presidency with a divided government is seen by HSBC as the ultimate “status quo” outcome that may initially weaken the dollar but is unlikely to have lasting consequences for the currency.

Historically, the dollar has flexed its muscles in the run-up to US elections, driven by surging safe-haven demand amid uncertainty over the election outcome. Analysts say this pattern could repeat itself in the coming weeks.

However, assuming that the dollar’s immediate post-election movement will continue into 2025 “may be a mistake,” HSBC warned, emphasizing the need to assess the resulting policy outcomes and whether their impact on various factors including fiscal, trade and financially meets expectations.