With the Fed not being on “election pause” in March, we think FOMC decisions should once again be a clear driver of financial markets in 2020. But how will the election alone affect markets this year? Below, we have listed how S&P 500, US 10-year Treasury yields, VIX, and the broad dollar index (DXY) perform in election years. The first three do not show a clear pattern. Yields increase in seven out of 12 election years and do not on average show a significant divergence. Although S&P 500 and VIX do, respectively, decline and rise on average in election years (measured by y/y percentage change), this is primarily driven by the Global Financial Crisis in 2008. Excluding 2008, S&P 500 performs equally well in election and non-election years, while the VIX index is not significantly higher or lower compared to non-election years.The dollar usually strengthens in election years, while there is no clear pattern for equities and yields.When looking at the DXY, there is, however, a tendency for the dollar to appreciate. Intuitively, this also makes sense as the dollar benefits from an election year’s usual cocktail of higher political uncertainty and higher US growth (vs. the rest of the world) as described above.EUR/USD usually weakens both before and after US presidential electionsThe question then is whether this pattern will repeat itself in 2020. We think so. The isolated impact from the election uncertainty should thus be negative for EUR/USD – especially if Trump wins. Back in 2016, EUR/USD increased in the run-up to the election, but that was driven by expectations of Hillary Clinton winning. With Trump’s surprising win, the dollar gained, yields rallied and EM FX weakened (in particular the Mexican peso, see chart 8). We generally expect the same reaction, although probably to a lesser degree, as this time Trump is the favourite. But “how much less” depends to a large extent on who will be the Democrats’ presidential candidate.What was good for Trump ahead of the 2016-election was bad for the MXNOverall, we think the 2020 US presidential election could increase market volatility more than usual. Not only has President Trump – especially via his notorious Twitter account – proven to be a bigger “market mover” than, for instance, his predecessor President Obama, but the relatively high probability of the Democrats’ nominee being a pure left-wing rather than a moderate could spur some nervousness. In turn, this could keep volatility somewhat high even throughout the first half of the year, when the Democratic primaries and caucuses take place, starting in Iowa.