The U.S. dollar gauge experienced its largest drop since mid-September, while Treasury futures rose in response to polling data leading up to Tuesday’s elections, prompting some investors to reassess their positions in what are commonly referred to as “Trump trades.” The Bloomberg Dollar Spot Index fell by as much as 0.6% on Monday, and with the cash market closed for a holiday in Japan, Treasury futures saw modest gains. The Mexican peso led a rise among emerging-market currencies, appreciating nearly 1%, reflecting a shift in investor sentiment regarding the likelihood of a Republican victory.
In light of recent polling indicating that Democratic candidate Kamala Harris may be gaining traction in key swing states, some investors are reconsidering their bullish dollar bets, which had previously been seen as a primary strategy in anticipation of a Trump win. The overall electoral race remains highly competitive, heightening the potential for increased market volatility as voting commences.
“Following the weekend, markets had priced in about a 42% probability of a Republican sweep, but this morning there is growing uncertainty, prompting a rapid reduction of the premium associated with the ‘Dollar Trump Trade,’” noted Tony Sycamore, an analyst at IG Markets.
The dollar fell against all major currencies in the Group of Ten, with the Norwegian krone and euro each gaining over 0.5%. Asian currencies also strengthened, with the Japanese yen and the offshore yuan rising by 0.7% and 0.3%, respectively, against the dollar.
A recent poll from the Des Moines Register/Mediacom revealed that Harris holds a 3-percentage-point lead over Trump in Iowa, a key state often seen as indicative of broader electoral trends, particularly in neighboring Wisconsin among female voters. However, Harris’s lead remains within the margin of error across various surveys, and an NBC News poll released Sunday indicated that the race is essentially tied.
“The stage is set for a binary market reaction,” commented Peter Dragicevich, a strategist at Corpay. He added that a Trump victory is likely to bolster the dollar due to his economic policies, while a win for Harris is expected to put downward pressure on the currency.
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