The dollar weakened as investors refrained from betting on a Trump victory
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The dollar weakened and Treasuries rose on Monday as global markets fell sharply on bets on Republican candidate Donald Trump’s victory in the US presidential race.
the dollars fell 0.6% against a basket of major currencies including the pound, euro and yen, putting the currency on track for its biggest one-day decline since September.
Yields on US government bonds, which are inversely related to prices, were lower and the Mexican peso strengthened after a closely watched poll over the weekend showed unexpected wave of support for Democratic candidate Kamala Harris in Iowa, a state previously dominated by Trump.
The poll, conducted by nonpartisan pollster J Ann Selzer and released late Saturday, is considered the “gold standard” of opinion surveys in the state.
Mitul Kotecha, head of FX and EM macro strategy for Asia at Barclays, said: “There was this election gap introduced this week and that gap was largely due to Trump winning in the polls.”
Kotecha estimates that Trump “senior” in dollars represents a 3% increase in the dollar index. “If Harris wins, we expect to see some of that premium released,” he added.
“There seems to be some [dollar] today’s reversal in the Iowa polls,” said Ju Wang, head of broader China FX and rates strategy at BNP Paribas, noting that Asian currencies rose price against the dollar on Monday.
Expectations are growing for Trump’s victory US presidential election on Tuesday, coupled with unexpectedly strong economic data, pushed the dollar up its biggest monthly gain as of April 2022.
The 2-year Treasury yield fell 0.04 percentage point to 4.17%, while the 10-year yield fell 0.07 percentage point to 4.30%.
The betting market also changed strongly in the final days before the election. Trump’s odds of winning have dropped to 54% on Kalshi, a US futures exchange, and to 58% on Polymarket, a foreign cryptocurrency exchange. Last week, the market priced Trump’s victory at 64% and 67%, respectively.
Investors believe that if Trump wins and implements trade tariffs and tax cuts, inflationary pressure will increase, making it difficult for the US Federal Reserve to quickly cut interest rates.
Fed is interest rate cuts are expected increased by a quarter of a percentage point on Thursday, two days after the election.
Last weekend, the US economy recorded impressive growth weakest jobs report of the Biden administration, with just 12,000 jobs added, following disruptions from hurricanes Helene and Milton and labor strikes. This was lower than the 100,000 forecast from economists polled by Bloomberg.
“Trump’s poll results have contributed to the dollar’s rally. . . but so is outstanding growth,” Barclays analysts said in a note on Sunday.
Trinh Nguyen, senior emerging Asia economist at Natixis, said that besides the specter of Trump’s tariffs, investors are also considering Trump’s proposed corporate tax cuts: Elections and control of Congress have a profound impact on America’s growth trajectory.
“There is a lot of pent-up investment that has been paused due to uncertainty about the economic situation. [future of the] Act to reduce inflation and corporate tax rates,” she said.
The Mexican peso, which many investors consider Trump’s go-to trading currency due to the country’s dependence on US exports, rose 0.9% against the US currency, to 20.1 pesos to the tune of 1. dollars.
The yen and yuan rose 0.8% and 0.5%, respectively. The Yen is still down more than 2% against the USD in the past month.
Bitcoin, which had risen on hopes of a Trump victory, fell 0.7% on Monday to $68,750.
Trump has positioned himself as the pro-crypto candidate, vowed to end the regulatory crackdown, and has won the support of major Silicon Valley crypto investors, including Andreessen Horowitz.
