Authors: Karen Brettell and Amanda Cooper
(Reuters) – The U.S. dollar fell as U.S. voters headed to the polls on Tuesday, with election results likely to determine at least the dollar’s short-term fate.
Polls show a tight race between former Republican President Donald Trump and Democratic Vice President Kamala Harris, with the most extreme currency moves coming if the novel president’s party also wins control of Congress.
In recent days, investors have been withdrawing bets that Trump will win the presidency, in part because some polls show Harris’s chances of winning increasing. Betting sites including PredictIt and Polymarket have Trump as the favorite, although his probability of winning has declined.
“We have seen some slowdown in the so-called Trump trade, which is characterized by a strong dollar and high Treasury yields,” said Helen Give, a currency trader at Monex USA in Washington.
“We will see the dollar stay quite close to the current ranges, I would say within a quarter of a percent, until we start to see the first results this evening,” Give said.
Analysts expect Trump’s immigration and tariff policies to stoke inflation, while tax cuts and deregulation could spur economic growth by pushing up longer-dated Treasury yields and pushing up the value of the dollar.
On the other hand, the Democratic coup could cause the dollar to weaken as investors abandon more bets on Trump and possible investor concerns about the economic impact of higher taxes and stricter business regulations.
“Trump deals” have helped strengthen the dollar in recent weeks and caused the euro, Mexican peso and Mexican peso to weaken, all of which could potentially face novel tariffs under Trump.
As the election approaches, the volatility of these currency pairs has also increased.
Weekly implied volatility of the euro/dollar option was the highest since March 2023.
China’s implied volatility is at a record high, while dollar/Mexican peso is at its highest since March 2020.
The last price was down 0.32% at 103.60. The euro gained 0.29% to $1.0908. The dollar fell 0.19% to 151.84 Japanese yen.
The Chinese yuan gained 0.11% in offshore trading to 7.105 per dollar, while the Mexican peso weakened 0.09% to 20.133.
gained 4.03% to $69,767. Trump has expressed views that are seen as more favorable to cryptocurrencies.
Traders are also focusing their attention on the Federal Reserve’s two-day meeting, which ends on Thursday, when the U.S. central bank is expected to cut interest rates by 25 basis points. Investors will focus on any hints about whether the Fed may skip a rate cut in December.
The much stronger-than-expected September jobs report prompted investors to temper expectations about how many times the Fed is likely to cut interest rates. However, the much worse-than-expected report for October raised some doubts about this view.
“I’m sure they’ve been looking at these data points and this absolutely abysmal number of headlines, so maybe they’re seeing something in this that the markets aren’t seeing, and we could give them some clues about what we’re looking at in December,” Giver said .
Recent hurricanes and labor strikes are partly responsible for the tender October report.
According to CME Group’s Fed Watch Tool, investors are currently pricing in an 80% chance that the Fed will also cut interest rates in December.
The Bank of England is expected to cut interest rates by 25 basis points on Thursday, the Riksbank will cut rates by 50 basis points and Norges Bank will remain unchanged.
The pound sterling strengthened 0.46% to $1.3016.
As expected, Australia’s central bank kept interest rates steady on Tuesday and warned that policy would need to remain restrictive for some time.
The Australian dollar rose 0.76% to $0.6634.
