(Bloomberg) — A gauge of the dollar fell the most since late August and Treasury futures rose as polls ahead of Tuesday’s U.S. election prompted some investors to scrap so-called Trump trades.
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The Bloomberg Dollar Spot Index fell as much as 0.7% on Monday, while Treasury futures edged higher. The Mexican peso rose more than 1%, leading gains among emerging market currencies.
The moves signal a revaluation of bullish bets on the US currency, riding on higher chances of a Trump victory, which had sent the dollar gauge to a four-month high last week. Investors were betting that Trump’s low-tax, high-tariff policies would boost both growth and inflation before polls this weekend suggested Democratic candidate Kamala Harris could take a lead in some swing states.
The overall race is still neck-and-neck with no clear winner, increasing the risks of market swings as voting day approaches.
“Markets are now pricing in a higher probability of a Harris win, which is consistent with moves in the PredictIt betting market,” said Carol Kong, a strategist at the Commonwealth Bank of Australia. “That means the possibilities for a stronger dollar are now greater in the event of a Trump victory.”
The dollar fell against all its Group of 10 peers, with the Norwegian krone and Australian dollar rising more than 0.6%. The Mexican peso rose 0.9%, leading gains among emerging market currencies. In Asia, the yen rose 0.7%, while the domestic yuan rose as much as 0.6%, the highest level since early August.
Emerging market investors had been bracing for the fallout from a possible Trump victory as his plans to impose tariffs would weaken their exports and demand for their currency.
“After projecting a roughly 42% probability of a Republican sweep this weekend, markets are less certain this morning and have hastily removed some of the premium built into the ‘Dollar Trump Trade,’” said Tony Sycamore, analyst at IG Markets. , wrote in a note.
With a Republican victory, a victory in the White House for Trump is accompanied by a majority in the Senate and the House of Representatives.
A Des Moines Register/Mediacom Iowa poll showed Harris with a 3 percentage point lead in the state over Trump. The survey, conducted by renowned pollster Ann Selzer, is seen as a bellwether for Harris’ performance in nearby Wisconsin, especially among women.
