The dollar is rallying because investors are making a 'down payment' on a Trump election victory - MarketWatch
By: William Watts (MarketWatch)
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It isn’t the only reason, but the U.S. dollar has been strengthening in part because investors are growing more confident Republican nominee Donald Trump will be victorious in the Nov. 5 presidential election, according to one Wall Street strategist.
The dollar has strengthened versus major rivals in October at the same time betting markets have priced in a growing probability of a Trump victory on Nov. 5, observed Thierry Wizman, FX and rates strategist at Macquarie.
The ICE U.S. Dollar Index
DXY
, a measure of the currency against a basket of six major rivals, has jumped 2.5% in October, turning it positive on the year. Meanwhile, Trump’s probability of victory over Vice President Kamala Harris, the Democratic nominee, has gone from roughly even in late September to around 55%, according to bets on prediction market Polymarket (see chart above).
“That’s not surprising; our premise is that Trump pursues policies (higher tariffs, lower immigration, lower taxes) that are inflationary, leaving the Fed to be more hawkish than otherwise over the 2025-26 horizon,” Wizman and fellow Macquarie strategist Gareth Berry said in a note last week. “Trump’s policies are strong -dollar polices,” the strategist wrote (emphasis theirs).
The idea that Trump — who spent much of his first term as president complaining that weak foreign currencies were sapping U.S. competitiveness — is a strong-dollar candidate is a noteworthy twist, Wizman acknowledged in a follow-up interview with MarketWatch.
Trump might be moving toward being a strong-dollar advocate “because I think he recognizes that inflation has been bad for his political opponent” and he recognizes that a weaker dollar is inflationary, Wizman said.
Wizman noted Trump’s threat last month to impose 100% tariffs on countries that “leave the dollar.”
In an interview with the Financial Times published Sunday, Scott Bessent, a hedge-fund manager and top economic adviser to Trump, maintained that the Republican nominee stands by the U.S. dollar as a reserve currency and would not try to devalue it. In an interview with Bloomberg Businessweek this summer, Trump had said the U.S. had currency problems, particularly against the weak Japanese yen
Such comments aside, however, it’s still Trump’s expected policy path, and its potentially inflationary implications, that are the main driver of recent dollar gains, Wizman said.
The Trump administration’s three core economic-policy agenda items —
higher tariffs, fewer immigrants, and lower taxes — would all be more inflationary, either in theory or in practice, than the corresponding alternatives under a Harris administration, Wizman said. More important, perhaps, is that those inflationary policies, if they were enacted, would would force the Fed to pursue a trajectory of real and nominal interest rates that would be higher than otherwise.
It’s possible, of course, that whoever proves to be the ultimate winner will be constrained by rising bond yields. Worries over the U.S. fiscal outlook have been blamed for a backup in Treasury yields, which move opposite to Treasury prices, despite the Fed’s larger-than-usual rate cut of 50 basis points in September.
See: Trump’s or Harris’s spending plans could be dashed by a repeat of the ‘great bond massacre’
Trump’s growing advantage in betting markets comes as polls continue to show a tight race. A lack of daylight between Harris and Trump in several key swing states may be giving betting-market participants more confidence the Republican will prevail in the electoral college, analysts have said.
If Harris does come out the winner, or if betting markets turn in her favor before Nov. 5, it’s likely the dollar would give back a chunk of its recent gains, Wizman said. The euro
EURUSD
, trading near $1.09 on Monday afternoon, could strengthen toward $1.11 or $1.12 in that event.
“So again, it depends on who wins, but I think what we’ve had in the last two weeks is a little bit of a down payment on the prospect of Trump winning,” Wizman said.
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Usually happens when a Repub has the advantage
Time for the spin machine to go into overdrive.
Feel free to prove them wrong.
So they're looking forward to their next round of millionaire and billionaire tax cuts.
Opposed to what? Harris already stated she's not going to change anything from the Biden trainwreck that brought us more expensive, well, EVERYTHING.
Covid brought you and the rest of the world that ...
It’s all COVID’s fault, which is all Trumps fault, who is all Republicans fault …. Harris is the next coming …… So Democrats are always right, in all things.
Thank God I’ve finally seen the light. Assist from my little brother up Norte.
So in your world, Biden is responsible for world-wide inflation?
Come one, man! If he's smart enough to hide evidence of his criminal dealings from the world he certainly capable of melting down the global economy while hiding in his basement. /s
Alas, you've been blinded by it, God doesn't like to be stared at, He's kinda shy.
" ...according to one Wall Street strategist."
Is this a joke, just one? Well golly, someone on Wall Street agrees with themselves. /s
The WSJ has gone into the shitter since I had an actual printed subscription.
The article is from MarketWatch.