HSBC - "President Obama has been re-elected as US President. Republicans retain the House of Representatives, while Democrats retain the Senate (...) This result points to a weaker USD given a likely “risk on” FX mood on expectations of sustained QE, a reduced threat of trade/currency tension with China and the simple fact that we have avoided a drawn-out process in declaring a winner. USD-MXN lower may be the most potent play for now (...) Beyond the initial reaction, the “risk on” sentiment will be challenged at some point by the heightened fiscal cliff threat. We believe this may extend USD weakness, but will cap and potentially reverse the rally in “risk on” currencies we expect in the near term
Capital Economics - "The re-election of President Obama removes one uncertainty that has been weighing on the markets over the last few months. But they are none the wiser about if, how and when Congress will deal with the colossal tightening in fiscal policy scheduled to occur early next year. And with Congress still split, President Obama will struggle to garner bipartisan support for a more comprehensive agreement that addresses the longer term issue of how to put the nation’s finances back on a sustainable path."
Rabobank - "Although the clear result in the presidential elections is a plus, the elections results for the House of Representatives and (one third of) the Senate show that the balance of power in Washington DC has not changed. We still have divided government. In fact, the new House and the new Senate appear more polarized than they are now, as moderates in both chambers of parliament are being replaced by more right-wing Republicans and more left-wing Democrats. (...) That means that in the upcoming fiscal cliff negotiations we are likely to see a game of chicken reminiscent of last year’s debt ceiling negotiations, with House Republicans opposing any kind of tax increase. That may unsettle financial markets in November and December and put downward pressure on US treasury yields."
UBS - "The election itself, contrary to previous predictions, was not very close and an Obama victory was all but priced in well before the session began. The initial round of dollar weakness, Treasury buying and sell-off in equity futures was quickly offset by profit taking, which ultimately reflected the fact that an Obama victory was probably a consensus view beforehand. The Democrats' stronger than expected showing in the Senate, which they have retained, however does pose issues for the US economy in the medium term as markets will immediately worry about the chances for a bi-partisan agreement amid the debt ceiling debate. We expect this to become a factor in FX markets in due course and Fitch have already warned that a downgrade for the US is likely next year unless measures are taken to address the US' long term fiscal condition. The ratings agency currently has the US on negative outlook and expect a decision on the rating to be taken at some point late next year."
BBH - "To us, the world looks very much the same as it did on Monday. Besides the Obama victory, the US Senate is held by the Democrats, while the House is held by the Republicans. Again, we feel that the market impact from the Obama’s victory will likely come in the areas of fiscal and monetary policies. With regards to the latter, the potential successor to Fed chief Bernanke, should he step down when his term ends in 2014, could have an outsize impact on the dollar. Some commentators have attributed the post-election fall in the dollar to the presumption that Obama would indicate someone more dovish than Romney as the new Fed Chairman. We find this hard to imagine. If anything, the dollar’s weakness has more to do with worries about the fiscal cliff. Here too, not much has changes in this regard. The Democrats retained control of the Senate and the Republicans kept the House.
Fitch has already weighed in, saying that there would be no “fiscal honeymoon” for President Obama. The agency added that a US downgrade would be likely by late 2013 if the US fiscal outlook remains unresolved. This is pretty consistent with previous comments from both Fitch and Moody’s, saying downgrades would not be seen until the political landscape was clear for 2013. We now have more clarity, and we now look for signs that the two major parties can come up with a compromise in the coming months. Our proprietary ratings model has the US remaining as a borderline AAA credit. However, this assumes that the US does not fall off the fiscal cliff."