(Bloomberg) — The dollar’s rally this month is largely driven by betting markets increasingly pointing to a victory for Donald Trump in the U.S. presidential election, Standard Chartered Plc said.
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The bank calculates that 60% of the US currency’s gains in October are tied to growing bets that the former president will win the November 5 election.
The Bloomberg Dollar Spot Index is up nearly 3% and poised for its best month since 2022. Many analysts say a Trump presidency would boost the dollar given the prospect of high rates and associated market volatility, which will tends to favor port assets.
“The dollar has strengthened along with the increasing likelihood of a Trump victory in the gambling markets,” Steven Englander, head of global G-10 FX research at Standard Chartered, wrote in a note. That “affected the currency more than fixed income.”
There is increasing speculation in the betting markets that Trump will win the election, with the Polymarket platform assigning a 60% probability of such an outcome and PredictIt putting the probability at 57%. Recent opinion polls still show that the candidates are statistically tied.
England estimates that markets estimate a nearly 70% probability of a Trump victory and sees room for profit-taking if that is confirmed and Congress is divided. If Republicans win both the House of Representatives and the Senate, it could impact markets, he added.
But the outcome that would most move markets would be a victory for Vice President Kamala Harris with a divided Congress, Englander says. That’s because she would have a hard time getting her proposals passed, and the Federal Reserve could be forced to provide more stimulus to the economy, leading to the elimination of long dollar positions.
While the election race has been the main driver for the dollar, Trump’s bets explain only about seven basis points of the 40 basis point rise in 10-year U.S. yields since early October, Englander said. Bonds have been particularly affected by the outlook for Fed policy, with the surprisingly strong US jobs report from earlier this month being the biggest factor, he added.
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