The US dollar weakened on Monday as investors reined in their bets on a victory for Donald Trump in the presidential election.
Analysts say a Trump win would boost the dollar, while a win for Vice President Kamala Harris will see its value fall.
So a move in either direction shows which way Wall Street traders think the vote is going.
The dollar fell 0.6 percent, putting it on track for the biggest one-day decline since September. The Financial Times reported.
Bitcoin, which has rebounded with the support of the former president, has also fallen.
The US dollar weakened on Monday as investors reined in their bets on a victory for Donald Trump in the presidential election
The moves reflect a reevaluation of the so-called “Trump Trades” after a major poll last weekend showed an unexpected surge of support for Harris in Iowa.
Wall Street increasingly positioned itself for a Trump victory and bought stocks that would benefit from a Republican victory.
Investors believe his policies on immigration, tariffs and tax cuts will increase inflation and strengthen the dollar’s strength. Meanwhile, Harris is seen as the continuity candidate.
Experts said Monday’s weakening of the dollar was linked to the Des Moines Register/Mediacom Iowa poll showing Harris with a three-point lead in the state previously dominated by Trump.
A special one New York Times/Siena College Polls also showed Harris slightly ahead in Nevada, North Carolina and Wisconsin.
“The polls suggesting Harris is ahead in a few swing states are causing some profit-taking in the Trump trade,” Kenneth Broux, head of FX and quotes business research at Societe Generale, told me. Reuters.
U.S. Treasury yields also fell on Monday after polls showed investors underestimated the possibility of a Harris win.
However, the two candidates remain neck-and-neck in the opinion polls, and the outcome of the election may not be known for days after voting ends.
“As we get closer to the US elections, there is less confidence that Trump will win the election,” Lee Hardman, a senior currency analyst at MUFG, told me. Bloomberg.
“A Trump and Red Sweep win would be the most bullish outcome for the US dollar, while a Harris win with a divided Congress could see the US dollar quickly recoup last month’s strong gains.”
A so-called Red Sweep means that Republicans win not only the presidency, but also both houses of Congress.
Expectations that Trump would win a second term had pushed the dollar to its biggest monthly gain since April 2022 in October.
Investors predicted that if Trump won, his economic policies would lead to higher growth and higher inflation.
This in turn would mean that the Federal Reserve would also keep interest rates high for longer, which tends to make the dollar stronger.
Experts said Monday’s weakening of the dollar was linked to a poll showing Harris with a three-point lead in Iowa, a state previously dominated by Trump.
Wall Street increasingly positioned itself for a Trump victory and bought stocks that would benefit from a Republican victory
Trump’s immigration policies are raising particular concerns about how they could drive up inflation.
After peaking at 9.1 percent in June 2022, inflation is now declining toward the Federal Reserve’s 2 percent target.
Economists warn that deporting guest workers, as Trump is proposing, could actually worsen inflation.
A study by the nonpartisan Peterson Institute for International Economics found that deporting immigrants would reduce economic output and increase inflation.
Because there are fewer workers available, companies would either have to raise wages, raise prices or accept smaller profits.
A separate study by University of Colorado economists found that for every million illegal workers expelled from the US, 88,000 American workers lost their jobs during the Bush and Obama administrations.
Supporters of Trump’s immigration proposals say the economy will be better off if Americans can earn more of the jobs currently performed by foreign workers.
But the research shows that migrant workers in sectors such as catering and agriculture often do not compete with native workers.
That means that if they are deported, companies will likely cut production rather than hire more American workers.
“If he does the things he says he will do, he will hit the American economy with a negative supply shock,” said Adam Posen, president of the Peterson Institute. The Wall Street Journal.
“Prices will rise and the economy’s ability to supply goods and services will decline,” he said.