Dollar Weakens as Kamala Harris Gains Traction in Final Election Countdown

On Monday, the US dollar weakened by 0.3% against major currencies, while Treasury yields rose as investors adjusted their expectations for the presidential election, particularly regarding Donald Trump.

A new poll indicated unexpected support for Democratic nominee Kamala Harris in Iowa, prompting market shifts. Barclays’ Mitul Kotecha noted a Trump-related premium had previously boosted the dollar, estimating it contributed to a 3% rise in the dollar index, which could decrease if Harris wins.

Betting markets have shifted, with Trump’s chances now at 54% on Kalshi and 58% on Polymarket, down from last week’s 64% and 67%.

This change reflects concerns that a Trump victory could lead to rising inflation, impacting the Federal Reserve’s interest rate decisions. The Fed is expected to cut rates by a quarter-point on Thursday.

In the bond market, two-year Treasury yields fell to 4.18%, and ten-year yields dropped to 4.32%. Shares of Trump Media and Technology Group rose 12% after earlier losses, while the Mexican peso strengthened by 0.8% against the dollar.

Bitcoin also saw a slight drop to around $67,100, despite Trump’s pro-cryptocurrency stance. Despite this, the cryptocurrency managed to regain momentum and is currently tradign at around $69,000. Natixis economist Trinh Nguyen highlighted that uncertainty over tax rates has delayed investment decisions, emphasizing the election’s significant impact on the US economic outlook.