Written by Convera’s Market Insights team
The clear certainty is volatility
Volatility remains elevated across financial markets, but beware knee-jerk moves, with their first reaction unlikely to be their last. Investors have been preparing for significant whiplash across assets amid a tight US election as polls close. The surge in the US dollar on expectations for a Trump victory has seen the US dollar index rise 1.7%, and if that gain holds it will be the gauge’s biggest jump since March 2020.
Early trades are favouring Trump
Donald Trump has the early advantage in the race for the White House as he wins the first two crucial swing states. Trump has won North Carolina and Georgia but is also leading in Pennsylvania, Michigan and Wisconsin – the three major battleground states in the Rust Belt.
A batch of trades around the world tied to rising prospects of Trump winning has triggered some decisive moves already. Stock futures are extending gains, Bitcoin hit an all-time high, Treasury yields are stretching higher and the US dollar index is near 12-month highs. Everything other than the Canadian dollar is down at least 1% across the G10 space with the euro suffering the most – down over 2% on the day. This reflects the view that universal tariffs under a Trump 2.0 will hit open economies like the Eurozone. The Mexican peso, a key election barometer, is living up to expectations, dropping more than 2.5%.
The British pound is holding up well in comparison, but is still down 1.4% this morning to trade in the mid-$1.28 zone. Extended declines are expected in the near term, especially if it’s a Red Sweep. GBP/EUR, on the other hand, is up 0.5% and testing €1.20 amidst the euro’s greater depreciation versus the dollar.
Watershed moment
The knife-edge election has been viewed as a watershed moment by investors. If Republicans were to win the White House and both houses of Congress, investors worry Trump’s promised mixture of tariffs and tax cuts could feed inflation and put upward pressure on interest rates.
The dollar continues to rally alongside a sharp rise in Treasury yields on speculation Trump’s policies would keep US interest rates elevated. The currency’s gain are on the back of a building bond-market selloff as traders re-calibrated the odds of what has been a neck-and-neck race between Trump and Vice President Kamala Harris. Beyond the election result, growth and rate differentials should continue favouring the US currency. However, given the run-up in the dollar in October, a Red Sweep scenario is likely needed for the dollar to push on much higher. A Harris win would seem a benign outcome and prove a dollar negative scenario, whilst a more difficult outcome for the market to interpret would be Trump victory without the House of Representatives or a contested election.
Polling data currently shows a 98% chance of Trump winning. Still, pivotal battleground states remain tightly contested and have yet to be called. That leaves open the possibility of a sharp reversal in currency markets, as have been seen in prior cycles.
Dollar surges, euro suffers
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: November 4-8
All times are in BST
Have a question? [email protected]
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
