What will happen to the US dollar if Hillary Clinton wins the American Presidential election? And what if Donald Trump wins?

Many think the value of the dollar will initially sink against the currencies of developed countries such as the UK, Japan and Switzerland if Trump edges the contest

A one pound sterling coin on top of a US dollar bill (Getty)

The mighty US dollar has been gradually strengthening against most other currencies since May 2016.

This is mainly because the American economy has been performing relatively well (compared with much of Europe and Japan), with employment growing quite strongly.

This momentum has increased expectations of another interest rate hike by the American central bank, the Federal Reserve, which has supported the value of the currency.

Yet the dollar index, which measures the value of the greenback against a basket of global currencies, has slipped slightly in the past week.

This coincides with a tightening of the polls and the higher implied possibility of a Donald Trump victory.

So what will happen to the greenback after the result of the election is announced?

We look below at the two scenarios.

Hillary Clinton wins….

A victory for the experienced Democrat politician is expected to prompt a dollar rally.

Since she was cleared by the FBI of wrongdoing in relation to her emails at the weekend the dollar has already strengthened.

This trend is expected to continue if Clinton wins the White House.

Notwithstanding her tacking to the left on economic policy in her Presidential campaign to gain the votes of disaffected Americans, few expect any economic policy shocks from Clinton

Donald Trump wins…

Here the impact is vastly more uncertain – both in the short-term and medium term.

Many analysts think the value of the dollar will initially sink against the currencies of developed countries such as the UK, Japan and Switzerland if Trump edges the contest.

It will also probably fall against the euro, the second most important global currency.

But some think the dollar could strengthen against developing nation currencies – such as the Mexican peso – due to anticipation that Trump will push through new protectionist trade policies, which will damage their economies.

There might well also be serious volatility in the dollar if Trump prevails because so little is known about his likely economic policy or who his economic advisers would be.

Signals of major domestic tax cuts or big spending pledges in the following weeks and months could have large impacts on the value of the greenback – but, rather like Trump himself, it is very hard to say in which direction the dollar would move.