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The US dollar weakened and Treasuries advanced today as global markets sharply reined in their bets on a victory for Republican candidate Donald Trump in tomorrow’s presidential race.
The dollar fell 0.4% against a basket of major currencies, putting it on course for its biggest one-day drop since at leastearly September. The euro was 0.5% higher against the US currency at US$1.09.
Yields on US Government debt, which move inversely to prices, were lower and the Mexico peso strengthened after a closely watched poll over the weekend showed an unexpected groundswell of support for Democratic nominee Kamala Harris in Iowa, a state previously dominated by Trump.
The poll, run by non-partisan pollster J Ann Selzer and released on Sunday, is considered the “gold standard” of opinion surveys in the state.
“There had been this election premium built in going into this week and that premium had largely been due to Trump gaining in the polls,” Mitul Kotecha, head of FX and EM macro strategy for Asia at Barclays, said.
Kotecha estimated a Trump “premium” in the dollar represented a 3% appreciation in the dollar index. “If Harris wins we expect to see some of that premium unwound,” he said.
Growing expectations of a Trump election victory, along with unexpectedly strong economic data, had driven the dollar to its largest monthly gain since April 2022.
Pictet Asset Management chief strategist Luca Paolini said his firm had trimmed some exposure to Trump trades last week, exiting a bet against the euro, as market expectations of a Republican sweep ran ahead of what was shown in polling.
“There was an unsustainable gap between polls and market expectations.”
Betting markets have shifted sharply in the final days before the vote.
The odds on a Trump victory have narrowed to 54% on Kalshi, a US futures exchange, and to 58% on Polymarket, an offshore cryptocurrency exchange.
Last week, the marketplaces had priced a Trump win at 64% and 67% respectively.
US Democratic presidential nominee Vice President Kamala Harris arrives at Lehigh Valley International Airport in Allentown, Pennsylvania, on Monday. Photo / Jacquelyn Martin, Pool, AFP
The Fed is expected to lower rates by a quarter of a percentage point on Friday, two days after the election.
The yield on the two-year Treasury fell 0.02 percentage points to 4.18%, while the yield on the 10-year bond dropped 0.04 percentage points to 4.32%.
Shares in the former president’s Trump Media and Technology Group, which controls free-speech-focused social media group Truth Social and trades under the ticker DJT, were up 15% by the mid-afternoon in New York, in choppy trading.
The stock had surged from about US$16 a share at the start of October to above US$50 near the end of the month, but has fallen sharply over the past week.
The Mexican peso, which many investors see as a straight Trump trade after Trump threatened to hit Mexican imports with tariffs, strengthened 0.8% against the US currency, to 20.1 pesos to the dollar.
Bitcoin, which had also risen as Trump’s prospects appeared to strengthen, was down 2.3% today, to $67,614.
The Republican nominee has positioned himself as the pro-cryptocurrency candidate, vowing to end a regulatory crackdown, and has won the support of major Silicon Valley crypto investors, including Andreessen Horowitz.
Trinh Nguyen, senior economist for emerging Asia at Natixis, said alongside the spectre of Trump tariffs, investors were also looking at his proposed corporate tax cuts: “The election and control of Congress has profound implications on US growth trajectory.
“There’s a lot of pent-up investment that has been paused due to uncertainty over the [future of the] Inflation Reduction Act and corporate tax rates,” she said.
Written by: Arjun Neil Alim in Hong Kong and Ian Smith and George Steer in London
