Unlock the US Election Countdown e-newsletter without spending a dime
The tales that matter on cash and politics within the race for the White Home
The greenback has roared to its largest month-to-month acquire in additional than two years, propelled by bets that robust financial knowledge and a victory for Donald Trump in subsequent week’s presidential election will result in rates of interest staying increased for longer.
An index measuring the greenback towards a basket of six different currencies, together with the pound and Japan’s yen, jumped 3.2 per cent in October, its greatest month since April 2022.
Economists and strategists mentioned the buck’s sharp rise mirrored persistent indicators of financial resilience, together with surprisingly robust September payrolls knowledge and proof of upper shopper spending.
“It’s been the perfect storm of dollar-supportive information over the last few weeks,” mentioned Eric Winograd, chief economist at AllianceBernstein. “Our data continues to paint a picture of an economy that isn’t really slowing.”
Market individuals mentioned rising expectations available in the market of a Republican election victory had bolstered the greenback’s enchantment.
The newest polls put Trump and Democratic candidate Kamala Harris nearly neck and neck, setting the stage for an especially tight race on November 5.
Buyers imagine that if Trump wins and commerce tariffs and tax cuts are carried out, then inflationary pressures could be compounded and the Federal Reserve could be much less more likely to minimize rates of interest quickly.
“It’s a combination of better than expected economic data. [And] also the growing consensus that Trump is likely to win the election,” mentioned Andrzej Skiba, head of Bluebay US mounted earnings at RBC International Asset Administration. “With Trump, you could expect greater pressure on inflation than otherwise would be the case.”
Whereas Trump has said his choice for a softer greenback, strategists mentioned it’s logistically tough to weaken a forex.
After policymakers lowered charges by an unusually giant 0.5 share factors in September, markets priced in no less than yet one more jumbo-sized minimize earlier than the year-end.
However these expectations have been scaled again over the previous month. Futures markets are pricing in a quarter-point discount at subsequent week’s Federal Reserve assembly and people views have been cemented after October payrolls got here in a lot decrease than anticipated on Friday, albeit distorted by main hurricanes and employee strikes, whereas the unemployment fee held regular.
Markets on the finish of this week confirmed rising odds of one other quarter-point minimize in December.
Nonetheless, have been Harris to win the election, Mark McCormick, head of FX technique at TD Securities, doesn’t “think Harris is fundamentally negative for the dollar”.
Some positions could unwind if Trump loses the election, he mentioned. “But that’s a dip,” he added. “Data, central banks, the economic outlook — all of those things are moving back in favour of the US.”
For AllianceBernstein’s Winograd, “the extent of that [currency] weakening has to be limited by the [recent economic] data being positive . . . I don’t think the dollar will undo an entire month’s worth of gains.”
