The U.S. dollar declined on Tuesday as Americans cast their votes, with election results expected to shape the dollar’s direction in the near term.
Polling suggests a close race between Republican candidate Donald Trump and Democratic candidate Kamala Harris. Currency fluctuations could intensify if the winning presidential candidate’s party gains control of Congress.
Despite some betting markets, including PredictIt and Polymarket, showing improved odds for Trump, the dollar continued to slide. “We might be seeing some position adjustments; there’s a lot of caution out there,” noted Steve Englander, head of global G10 FX research at Standard Chartered Bank’s New York branch.
Englander added, “The current mood appears to lean toward Trump, although for much of October, strong dollar positions were more prevalent.” Trump’s proposed policies, including tax cuts and deregulation, may boost growth, pushing up long-term Treasury yields and strengthening the dollar. Conversely, a Harris victory might weaken the dollar due to potential market concerns over higher taxes and stricter business regulations.
The so-called “Trump trades” have led to declines in the euro, Mexican peso, and Chinese yuan, as these regions could face new tariffs under another Trump term. Election-related currency volatility has surged, with one-week implied volatility for euro/dollar options reaching levels unseen since March 2023. Similarly, the offshore Chinese yuan and dollar/Mexican peso pairs have seen their highest implied volatility since March 2020.
By Tuesday afternoon, the dollar index was down 0.48% at 103.43, marking its lowest since October 16. The euro gained 0.48%, peaking at $1.09368, while the dollar dropped 0.44% to 151.46 Japanese yen. Meanwhile, the offshore yuan rose 0.13% to 7.103 per dollar, and the Mexican peso gained 0.15% to 20.092. Bitcoin also climbed 2.76% to $68,928 amid expectations that Trump’s policies may favor cryptocurrencies.
Investors are also eyeing the Federal Reserve’s two-day meeting, expected to conclude with a 25 basis point rate cut. Market participants will watch for any signals regarding the possibility of skipping a December rate cut. While stronger than expected September jobs data had previously tempered expectations for further cuts, weaker than expected October data has reintroduced some uncertainty.
FX trader Helen Given from Monex USA noted, “The Fed will likely consider October’s weak numbers, and we may get hints about what to expect in December.”
Traders are currently assigning a 78% probability of a December rate cut, according to the CME Group’s Fed Watch Tool. Tuesday’s data showed an acceleration in U.S. services sector growth in October, with a strong rebound in employment that hints at temporary factors, such as recent hurricanes and strikes, behind October’s jobs slowdown.
On the global front, the Bank of England is expected to cut rates by 25 basis points on Thursday. The Riksbank may ease by 50 basis points, while the Norges Bank is forecasted to maintain its current rate. The British pound rose 0.46% to $1.3017, while Australia’s central bank held rates steady, resulting in a 0.74% rise in the Australian dollar to $0.6633.
