The dollar index suffered its biggest drop since mid-September, while U.S. bond futures rose, after recent poll data prompted investors to scale back bets on the so-called Trump trade. The Bloomberg Dollar Spot Index fell 0.6% in trading on Monday, and bond futures rose, with the physical market closed for a holiday in Japan. The Mexican peso rose nearly 1%, leading gains in emerging-market currencies, suggesting that expectations of a clear victory for Republican nominee Donald Trump are being reconsidered.
Recent polls showing Democratic candidate Kamala Harris with a slight lead in some swing states have weighed on bullish bets on the dollar on a Trump victory. Although the race remains close, uncertainty over the ultimate winner has increased the risk of volatility in markets as voting begins.
Tony Sycamore, an analyst at IG Markets, noted in a research note that markets began last week pricing in a probability of about 42% for Republican control, but have now become less certain and have been quick to reduce some of the “Trump trade” premium on the dollar.
The dollar fell against all its G10 peers, with the Norwegian krone and the euro rising more than 0.5%. Asian currencies also gained, with the yen and the yuan (in trade outside mainland China) rising 0.7% and 0.3% respectively against the greenback.
A Des Moines Register poll in Iowa showed Harris with a 3-point lead over Trump, a strong indicator of her likely performance in neighboring Wisconsin, especially among women voters. Despite the lead, most polls remain within the margin of error, and an NBC News poll released Sunday showed the race still close.
Peter Dragicevic, a strategist at Corbay, wrote in a note that the scene is set for mixed reactions. “A Trump win is expected to boost the dollar given his policy agenda, while a Harris win is expected to weigh on the dollar,” he added.
