Currencies Jitter as US Election Unfolds

6 Nov 2024 , 10:37 AM

As American voters cast their ballots on Tuesday, the dollar declined in value, with the outcome of the elections likely to determine the greenback’s future in the short term.

The most drastic currency movements will take place if the party of the next president also gains control of Congress, and polls indicate that Republican presidential candidate Donald Trump and Democratic contender Kamala Harris are in a close contest.

Even when the odds of Trump winning the president increased on betting sites like PredictIt and Polymarket, the dollar fell.

While tax cuts and deregulation may spur GDP, Trump’s immigration and tariff policies are predicted to fuel inflation, pushing the currency and longer-dated Treasury yields higher.

On the other hand, a Democratic triumph might cause the dollar to decline as traders reduce their wagers on Trump and potential investor anxiety over the economic effects of increased taxes and stricter business restrictions.

The euro, Mexican peso, and Chinese yuan have all declined due to so-called Trump trades, and a Trump administration may impose more levies on those currencies.

As the election draws near, volatility in these currency pairs has increased.

For euro/dollar options, the one-week implied volatility reached its highest level since March 2023.

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