(Bloomberg) — The dollar rallied as Donald Trump gained popularity in the U.S. presidential race, leading to a sharp rise in Treasury yields on speculation that his policies would keep U.S. interest rates high.
Most read from Bloomberg
The rise in bond yields promised to attract money to the US as investors seize the higher payouts. The dollar rose sharply against all its major peers in Asian trading, even as the race remained too close and crucial states had yet to report voting figures.
The currency’s gains came amid a bond market sell-off as traders recalibrated the odds of a neck-and-neck race between Trump and Vice President Kamala Harris. Trump has promised to cut taxes and impose high tariffs on imports, which would increase inflationary pressures and likely slow the pace of interest rate cuts by the Federal Reserve.
“Trump’s plan for tariffs and taxes should result in higher inflation and higher deficits and that should mean higher long-term interest rates,” said Priya Misra, portfolio manager at JPMorgan Investment Management.
The Bloomberg Dollar Spot Index rose 1.2%, after previously rising as much as 1.6%. The yield on ten-year US government bonds rose by 11 basis points to 4.37%. The dollar’s rise caused currency peers around the world to retreat, with the euro, yen, Australian dollar and Swiss franc all at least 1% weaker. Losses in the Mexican peso reached the 3% mark.
The tight battle has added to volatility in markets, where hedge funds and other traders piled into so-called Trump trades — such as bets on U.S. bonds or the Mexican peso — for much of October before taking a step back this week when Harris achieved some strong results in the US. polls.
Starting on October 29, hedge funds and other speculative traders positioned themselves for a further rally in the dollar, boosted in part by demand for safe assets following the election results. These funds, asset managers and other speculators held about $17.8 billion in bullish dollar positions, according to Commodity Futures Trading Commission data compiled by Bloomberg.
Still, key battleground states, including Michigan, Wisconsin and Pennsylvania, remain hotly contested and have yet to be called. That leaves open the possibility of a sharp turnaround in currency markets, as we have seen in previous cycles.
“This move makes sense if it’s a Trump win,” said Tom Fitzpatrick, managing director of Global Market Insights at RJ O’Brien. “But at the moment the market is a bit ahead.”
(Updates with details, notes, charts and prices.)
Most read from Bloomberg Businessweek
©2024 BloombergLP
