The US dollar weakened on Monday as investors curbed their bets on a Donald Trump victory in the presidential election.
Analysts say a Trump victory would boost the dollar, while a victory for Vice President Kamala Harris would cause its value to fall.
So a move in either direction shows which way Wall Street traders think the vote is going.
The dollar fell 0.6 percent in morning trading, on track for its biggest daily drop since September.
Bitcoin, which rallied with the support of the former president, also fell.
The US dollar weakened on Monday as investors limited their bets on a Donald Trump victory in the presidential election.
The moves reflect a reassessment of the so-called ‘Trump Trades’, after a key weekend poll showed an unexpected surge in support for Harris in Iowa.
Wall Street had been increasingly positioning itself for a Trump victory and buying stocks that would benefit from a Republican victory.
Investors believe his policies on immigration, tariffs and tax cuts will increase inflation and bolster the strength of the dollar. Meanwhile, Harris is seen as the continuity candidate.
Experts said Monday’s weakening of the dollar was related to the Des Moines Register/Mediacom Iowa poll, which showed Harris with a three-point lead in the state, which was previously dominated by Trump.
a separate New York Times/Siena College The poll showed Harris was also slightly ahead in Nevada, North Carolina and Wisconsin.
“Polls suggesting Harris may have the lead in a couple of swing states are prompting a bit of profit-taking in the Trump business,” said Kenneth Broux, head of corporate currency and rates research at Societe Generale. Reuters.
U.S. government bond yields also fell on Monday, after polls suggested investors were underestimating the chance of a Harris victory.
However, the two candidates remain tied in opinion polls, and the election result may not be known until several days after voting ends.
“As we get closer to the US election, there is less confidence in Trump winning the election,” said Lee Hardman, currency analyst at MUFG. Bloomberg.
“A Trump victory and a red sweep would be the most bullish outcome for the US dollar, while a Harris victory with a divided Congress could see the US dollar quickly retrace last month’s strong gains.”
The so-called Red Sweep refers to Republicans winning not only the presidency, but also both houses of Congress.
Anticipation of Trump winning a second term had led the dollar to its biggest monthly gain since April 2022 in October.
Investors predicted that if Trump won, his economic policies would lead to higher growth and higher inflation.
In turn, this would mean that the Federal Reserve would also keep interest rates higher for longer, which tends to strengthen the dollar.
Trump Media shares, however, reversed earlier losses and rose about 2 percent in afternoon trading Monday, after suffering the biggest percentage drop in its history last week.
Experts said the dollar’s weakening on Monday was linked to a poll showing Harris with a three-point lead in Iowa, a state previously dominated by Trump.
Wall Street had been increasingly positioning itself for a Trump victory and buying stocks that would benefit from a Republican victory.
Trump’s immigration policy is raising particular concerns about how it could increase inflation.
After peaking at 9.1 percent in June 2022, inflation is now declining toward the Federal Reserve’s 2 percent target.
Economists warn that deporting immigrant workers, as Trump proposes, could actually worsen inflation.
A study by the independent Peterson Institute for International Economics said deporting immigrants would reduce economic output and increase the rate of inflation.
With fewer workers available, Companies would have to raise wages, raise prices, or accept lower profits.
An independent study by economists at the University of Colorado found that for every million unauthorized workers expelled from the United States, 88,000 American workers lost their jobs during the Bush and Obama administrations.
Supporters of Trump’s immigration proposals say the economy will improve if Americans can earn more doing jobs currently done by foreign workers.
But research found that immigrant workers in industries such as hospitality and agriculture often do not compete with native workers.
That means if they are kicked out of the country, companies will likely reduce production rather than hire more American workers.
“If you do the things you say you’re going to do, you’ll directly hit the U.S. economy with a negative supply shock,” said Adam Posen, president of the Peterson Institute. The Wall Street Journal.
“Prices will rise and the economy’s ability to supply goods and services will decline,” he said.
