Let's rewind time to November 2020. Ahead of the US presidential elections, investors expect a 'blue wave', i.e. an outcome where the Democrats will control both the White House and the Senate. Consistently with these expectations, investors expect large fiscal stimulus to be forthcoming, and hence a strong appreciation of the USD in the long term.

While ballots are being scrutinized in the USA, it seems unlikely that the Democrats will secure both the Presidency and control of the Senate.

What would be the effect on the spot USD/Euro (E_$/EUR ) exchange rate of an electoral outcome where the Democrats would not have secured both the Presidency and control of the Senate? In other words, what would be the effect of investors revising their expectation about the long-term exchange rate? Explain making reference to the UIP (uncovered interest rate parity condition) equation and any appropriate graphic diagram.