Unlock the US Election Countdown newsletter for free
The stories that matter on money and politics in the race for the White House
The dollar weakened and Treasuries advanced on Monday as global markets sharply reined in their bets on a victory for Republican candidate Donald Trump in the US presidential race.
The dollar fell 0.6 per cent against a basket of major currencies, putting it on course for its biggest one-day drop since September. The euro was 0.7 per cent higher against the US currency at $1.0904.
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 late on Saturday, 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,” said Mitul Kotecha, head of FX and EM macro strategy for Asia at Barclays.
Kotecha estimated that a Trump “premium” in the dollar represented a 3 per cent appreciation in the dollar index. “If Harris wins we expect to see some of that premium unwound,” he added.
Growing expectations of a Trump victory in the election on Tuesday, along with unexpectedly strong economic data, had driven the dollar to its largest monthly gain since April 2022.
Luca Paolini, chief strategist at Pictet Asset Management, 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,” he said.
Betting markets have shifted sharply in the final days before the vote. The odds on a Trump victory have narrowed to 54 per cent on Kalshi, a US futures exchange, and to 58 per cent on Polymarket, an offshore cryptocurrency exchange. Last week, the marketplaces had priced a Trump win at 64 per cent and 67 per cent respectively.
Investors believe that if Trump wins and implements trade tariffs and tax cuts — and especially if the Republicans also emerge with control of both houses of Congress — then inflationary pressures will rise, making it less likely that the US Federal Reserve will rapidly cut interest rates. The Fed is expected to lower rates by a quarter of a percentage point on Thursday, two days after the election.
The yield on the two-year Treasury fell 0.05 percentage points to 4.16 per cent, while the yield on the 10-year bond dropped 0.08 percentage points to 4.29 per cent.
Assets that had performed well on expectations of a Trump victory sold off.
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, dropped 4.7 per cent in pre-market trading.
The stock had surged from about $16 a share at the start of October to above $50 near the end of the month, but has fallen sharply over the past week. Futures on the broad S&P 500 stocks index were up 0.2 per cent, while those on the Nasdaq 100 were up 0.1 per cent.
The Mexican peso, which many investors see as a straight Trump trade due to the country’s export dependency on the US, strengthened 0.8 per cent against the US currency, to 20.11 pesos to the dollar.
Bitcoin, which had also risen as Trump’s prospects appeared to strengthen, was down 0.1 per cent on Monday to $69,123. 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 that 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.
