by Ruth Carson and Michael G. Wilson
A gauge of the dollar dropped the most since late August and Treasury yields fell as polling data ahead of Tuesday’s US elections prompted some investors to pare the so-called Trump trades.
The Bloomberg Dollar Spot Index dropped as much as 0.7% on Monday while Treasury yields fell across the curve. The Mexican peso rose more than 1% to lead gains among emerging-market currencies.
The moves signal a revaluation of bullish wagers on the US currency built on higher odds of a Trump victory that had sent the dollar gauge to a four-month high last week. Investors were betting Trump’s low-tax and high-tariff policies would boost both growth and inflation, before weekend polling numbers signaled the Democratic candidate Kamala Harris might be edging ahead in some swing states.
The overall race is still neck and neck with no clear winner, amplifying risks of market swings as voting day nears.
“Markets are pricing in a higher chance of a Harris win now, which is consistent with the moves in the PredictIt betting market,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “That means the scope for dollar strength is now higher in the event of a Trump win.”
The dollar declined against all its Group-of-10 peers, with the Norwegian krone and Australian dollar advancing more than 0.5%. In Asia, the yen rose 0.6% while the onshore yuan gained as much as 0.6%, the most since early August.
Emerging market investors had been bracing for the fallout of a potential Trump victory, as his plans to enact tariffs would weaken their exports and demand for their currencies.
“After going into the weekend pricing in about a 42% probability of a Republican sweep, markets are less certain this morning and have hastily stripped out some of the premium built into the ‘Dollar Trump Trade’,” Tony Sycamore, analyst at IG Markets, wrote in a note.
A Republican sweep is where a White House victory for Trump is accompanied by majorities in the Senate and the House of Representatives.
A Des Moines Register/Mediacom Iowa poll showed Harris with a 3 percentage-point lead in the state over Trump. The survey, conducted by famously reliable pollster Ann Selzer, is viewed as a bellwether for how Harris may perform in nearby Wisconsin, particularly among women.
Still, Harris’ advantage across all of the surveys was within the margin of error, and a NBC News poll released Sunday showed the race deadlocked.
The polls also impacted betting platforms which track the implied probability indicators of an event based on quotes available on websites like PredictIt. On that platform, Trump’s favoritism dropped to a coin toss from 60 last week.
“The stage looks set for a binary reaction,” Peter Dragicevich, strategist at Corpay, wrote in a note. A Trump win is “likely to see the dollar strengthen given his policy platform, with a Harris victory expected to weigh on the dollar.”
Copyright Bloomberg News
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