The U.S. dollar experienced a decline in the first trading session of the week as currency traders moved away from “Trump trades,” which had previously benefitted from speculation surrounding former Republican President Donald Trump’s chances of defeating Democratic Vice President Kamala Harris in the presidential election scheduled for Tuesday.
The U.S. Dollar Index (DXY), which measures the strength of the dollar against a basket of six other currencies, fell to a new nine-day low on Monday following polls that reported Harris was leading in the presidential race. This decline marks a reversal of the dollar’s recent surge that was driven by favorable economic data and predictions of a Trump victory. Analysts suggest that Trump’s policies on taxes, tariffs, and immigration are expected to boost yields and increase the value of the U.S. currency, as opposed to contributing to a Harris victory.
Recently, bets on Trump’s presidential win have elevated the dollar, as such a victory is anticipated to lead to inflationary policies. However, weekend polls indicating improved prospects for Harris weakened the dollar’s momentum.
Improved Prospects for Kamala Harris’ Presidency
Harris has gained ground in several polls, although they indicate a tight overall race. She has also seen an increase in momentum on election betting platforms, where she currently leads by a slim margin on PredictIt, though Polymarket still shows Trump as the favorite.
If Harris wins, currency markets and long-term U.S. Treasury yields may rise due to inflationary pressures stemming from Trump’s immigration and tariff policies. Election Day will conclude a divisive campaign characterized by assassination attempts against Trump and President Joe Biden’s decision to withdraw in favor of Harris, with polls showing a close contest between the candidates.
Markets at Odds with Trump’s Economic Strategy
Market analysts worry that Trump’s protectionist trade policies could negatively impact exports and drive inflation higher in the world’s largest consumer market. The values of bonds and the currency are expected to fluctuate based on the election outcome in the most powerful economy. The stock price of Trump Media and Technology Group, which owns the social media platform Truth Social and trades under the name DJT, rose by 12% to just over $34 on Monday after experiencing overnight losses of more than 7%.
The stock had surged from around $16 per share at the beginning of October to over $50 by the end of the month but faced a sharp decline the previous week. The uncertainties surrounding the U.S. presidential election have also impacted the haven currency. If the party of the incoming president controls Congress as well, significant changes in the currency market may occur after the election. Profit-taking activities have led to brief declines in the U.S. dollar, but it has since recovered and is now consolidating around 104 index points.
Markets Await U.S. Fed Meeting
The U.S. central bank is anticipated to lower interest rates by 25 basis points at the conclusion of its two-day meeting on Thursday. Investors are keenly observing any signals that the Federal Reserve may opt to maintain rates in December. American employers created significantly fewer jobs in October than economists had forecast, igniting debate over the strength of the labor market. Recent labor strikes and various disasters have contributed to this disappointing report.
In September, investors had anticipated fewer Fed rate cuts due to much stronger-than-expected employment increases. The CME Group’s FedWatch Tool currently indicates that traders see an 82% chance that the Fed will reduce rates in December. Meanwhile, the Bank of England is also expected to cut interest rates by 25 basis points during its Thursday meeting, the Riksbank is projected to ease by 50 basis points, and the Norges Bank is expected to maintain its current rates.