Finance

Surging Trump Trade Doubts Rock Dollar, Boost Bond Futures

Trump Trade doubts weigh on the dollar and boost bond futures as US election polling suggests a tight race between Trump and Harris.

Trump Trade Doubts Weigh on the Dollar

Doubts around the ‘Trump Trade’ are causing notable shifts in the currency and bond markets, with the Bloomberg Dollar Spot Index dropping 0.7% on Monday — its largest decline since August. Treasury futures, meanwhile, saw gains as investors recalibrated their positions in anticipation of Tuesday’s US elections. Polling data shows Democratic candidate Kamala Harris edging forward, prompting investors to reconsider the long-standing Trump Trade.

Polls Drive Trump Trade Uncertainty

The weakening dollar aligns with poll data indicating that Kamala Harris is gaining ground in key swing states. A recent poll from the Des Moines Register showed Harris with a narrow 3% lead in Iowa, often considered an electoral bellwether. Investors who had previously backed Trump-related trades are reassessing, especially as Harris appears competitive among key demographics in states like Wisconsin.

Emerging Markets Brace Amid Trump Trade Adjustments

Emerging market investors have also felt the weight of Trump Trade uncertainties. Concerns over potential tariffs under Trump’s administration, which could impact exports and currency demand, have led to renewed caution. "Markets are beginning to price in a higher chance of a Harris win, consistent with the shifts seen in PredictIt betting markets," noted Carol Kong, strategist at Commonwealth Bank of Australia.

Market Outlook: Trump Trade’s Binary Reaction

Group-of-10 currencies gained against the dollar, with the Australian dollar and Norwegian krone advancing by 0.9% each. Asian markets also responded, with the yen and onshore yuan rising significantly. According to Corpay strategist Peter Dragicevich, the upcoming election is setting up a "binary reaction." If Trump wins, the Trump T

Trump Trade Doubts Weigh on the Dollar and Bond Markets

Growing doubts over the ‘Trump Trade’ are driving noticeable shifts in currency and bond markets, with the Bloomberg Dollar Spot Index declining by 0.7% — its sharpest drop since late August. This decline came on Monday, just as Treasury futures registered gains amid the reassessment of the Trump Trade ahead of Tuesday’s US elections. Polling data has introduced fresh uncertainty, showing a tighter race between Republican candidate Donald Trump and his Democratic rival Kamala Harris. With new data pointing to the potential for a Harris lead in key swing states, investors are beginning to pull back on their bullish dollar positions tied to Trump’s anticipated policy impact.

The mixed election outlook has led to varied reactions across financial markets. While the dollar lost ground against all of its Group-of-10 currency peers, Treasury futures rose in light trading, as US cash markets were closed for a Japanese holiday. The Mexican peso saw gains of over 1%, leading emerging-market currencies, a trend reflective of the growing doubts about a decisive Trump victory. Some investors are rethinking their bets, anticipating that a Harris administration could bring policy shifts that impact the dollar and global markets differently than previously expected.

Election Polls Shift Market Confidence in the Trump Trade

Recent polling results indicate Kamala Harris gaining momentum, particularly in swing states crucial to the election outcome. In Iowa, a Des Moines Register/Mediacom poll showed Harris holding a slim 3-percentage-point advantage. Conducted by reputable pollster Ann Selzer, this survey is often seen as a reliable indicator for electoral trends in neighboring states like Wisconsin. This recent data suggests that Harris could be competitive among demographics in key regions, including women, traditionally seen as swing voters.

Investors are responding to this data by reconsidering the dollar-focused Trump Trade, which has been a mainstay strategy among financial markets expecting a Trump win. The Des Moines Register poll comes alongside other surveys showing Harris making gains, although many of these results remain within the margin of error, indicating a tight race.

Implications of the Trump Trade for Emerging Markets

Emerging market investors are feeling the impact of these uncertainties around the Trump Trade. Trump's potential victory has been linked to policies such as tariffs on imports, which could dampen demand for exports from emerging markets. Tariff implementations are particularly concerning for export-driven economies, as they could weaken demand for local currencies. For these investors, a Harris win could potentially reduce these tariff risks, creating a more stable environment for emerging markets.

Carol Kong, a strategist at Commonwealth Bank of Australia, noted that markets are "pricing in a higher chance of a Harris win, as seen in recent movements on betting platforms like PredictIt.” A shift in sentiment has prompted some traders to unwind their bullish dollar trades tied to Trump’s policy platform, as they consider the implications of a potential change in the White House.

Global Currencies Respond as Trump Trade Hangs in the Balance

Currencies from developed and emerging markets reacted to the increasing doubts over the Trump Trade. The Australian dollar and Norwegian krone led the charge against the dollar, with both currencies rising by 0.9%. Asian markets saw similar trends; the Japanese yen gained 0.9% while the onshore yuan appreciated by 0.6%, marking its highest level since August.

As the dollar weakened across the board, investors kept a close eye on election-related developments. The Mexican peso’s strong performance underscores a broader trend among emerging markets, as traders weigh the possibility of a less aggressive US trade stance under Harris. Additionally, a softening dollar could ease pressure on other currencies, promoting stability in the global currency market.

Market Strategists Predict Binary Reaction to Election Outcome

Strategists are forecasting a "binary reaction" in response to the election results. According to Corpay strategist Peter Dragicevich, markets will likely respond sharply depending on who wins the election. A Trump victory could re-energize the Trump Trade, pushing the dollar higher as traders rally around his policy promises. In contrast, a Harris win might depress the dollar, as her policies are expected to align more closely with international trade cooperation and domestic economic reforms.

Tony Sycamore, an analyst at IG Markets, observed that "markets went into the weekend pricing in about a 42% probability of a Republican sweep, but Monday’s trading showed investors hastily pulling back on some of the premiums built into the Trump Trade.”

With such a close race, market participants are bracing for potential volatility. The dollar’s performance against global currencies highlights how closely financial markets are tied to election sentiment, especially in an environment of rapid and unpredictable shifts.