- Interest rates are predicted to remain higher, providing a boost to tech stocks and bitcoin
Expectations of Donald Trump’s impending US election victory have pushed the dollar higher in early trading, with government bond yields soaring as the so-called Trump trade returned.
Trump, whose Republican party is also on track to claim both Congress and the Senate, has already declared victory.
Opinion polls in Britain showed Trump leading in several key swing states, with the Republican candidate leading Democrat Kamala Harris by 266 to 194 votes in the Electoral College at 0730 GMT – just short of the 270 needed to win. win.
The Fed is still expected to cut rates at its meeting starting today. The Bank of England would also lower the base interest rate by 0.25 percentage points to 4.75 percent tomorrow.
Donald Trump has declared victory for a new term as US president
But markets believe that Trump’s second-term policy would be inflationary, potentially sharply reducing the volume of future Federal Reserve rate cuts.
Interest rate forecasts have been adjusted downwards in recent weeks.
This perception caused government bond yields to start rising again, with the ten-year yield rising by as much as 18 basis points to 4.47 percent – the highest level since July.
Ten-year bond yields had already risen by more than 40 bps in the month leading up to the US elections.
The US dollar also soared, rising 1.3 percent against the pound to £0.777 and 1.8 percent against the euro to €0.931.
Trump is seen as good for stock markets dominated by big US tech companies and the FTSE 100 initially reacted to sentiment and the pound’s fall, which flattered British shares, by jumping 1.13 percent to 8,365 in early trading.
By mid-afternoon, however, shares had fallen back to a gain of 0.3 percent for the day.
The so-called Trump trade has caused government bond yields to rise over the past month
Francesco Pesole, FX strategist at ING, said: ‘The bear steepening and widespread sell-off on the government bond yield curve reflect Trump’s widespread expectations of an inflationary mix of domestic (fiscal and migration) and external (tariffs) policies.
“We are also seeing some action in short-term USD swap rates, coupled with an aggressive repricing of Fed rate expectations.
‘In line with our expectations and consensus, markets are holding on to expectations of a 25 basis point (Fed) rate cut to 4.75 percent tomorrow, but the OIS curve has repriced around 10 basis points+ over the 2025 maturities to show.
‘That implies a policy rate of almost 4 percent in June 2025, almost 100 basis points higher than prices in mid-September.’
U.S. stock markets posted their best day in six weeks on Tuesday, which many market commentators said was an indication that investors were pricing in an impending Harris win.
Shares of Trump’s social media company Trump Media & Social rose more than 15 percent on Tuesday before plunging to end the day with a loss of 1.1 percent.
Bitcoin rises to record highs
Meanwhile, Bitcoin rose to a new all-time high of $75,371.69, surpassing the previous high of $73,797.98 in March. Trump and the Republican Party are seen as more positive for the crypto markets.
Lindsay James, investment strategist at Quilter Investors, said: ‘While the US election has had minimal long-term impact on equity markets, investors are likely to view the Trump presidency as positive for the share prices of many US companies.
“Proposals for corporate tax cuts combined with high tariffs are expected to improve the profitability of U.S. companies, although the tariffs will provoke an international backlash and far-reaching consequences.
“In our recent survey of some of the world’s largest asset managers, a Trump presidency was seen as slightly positive for markets, compared to no change for a Kamala Harris administration. was much bigger.
“Volatility will likely be the defining characteristic of this presidency.”