Alert – Wall Street gives clearest indication in weeks of which way the election is going

The US dollar weakened on Monday as investors reined in their bets on a victory for Donald Trump in the presidential election.

Analysts say that a Trump win would boost the dollar, while a victory for Vice President Kamala Harris will see its value dip. 

So a movement in either direction shows which way Wall Street traders think the vote is going. 

The dollar fell 0.6 percent, putting it on course for its biggest one-day drop since September, The Financial Times reported. 

Bitcoin, which has rallied with support from the former president, also slipped. 

The US dollar weakened on Monday as investors reined in their bets on a victory for Donald Trump in the presidential election

The moves reflect a re-evaluation of so-called ‘Trump Trades’, after a key poll over the weekend showed an unexpected surge of support for Harris in Iowa.

Wall Street had been increasingly positioning for a Trump win, and buying stocks which would benefit from a Republican victory. 

Investors believe that his policies on immigration, tariffs, and tax cuts will drive inflation higher and bolster the dollar’s strength. Meanwhile, Harris is seen as the continuity candidate. 

Experts said the weakening of the dollar Monday was linked 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 poll showed Harris was also slightly ahead in Nevada, North Carolina and Wisconsin. 

‘The polls suggesting that Harris may have her nose in front in a couple of swing states is causing a bit of profit-taking in the Trump trade,’ Kenneth Broux, head of corporate research FX and rates at Societe Generale, told Reuters.

Yields on US government debt also dropped on Monday, after the polls suggested investors were underestimating the possibility of a win for Harris.

However the two candidates remain neck-and-neck in opinion polls, and the result of the election may not be known for days after voting ends.

‘As we move closer to the US election there is less confidence that Trump will win the election,’ Lee Hardman, a senior currency analyst at MUFG, told Bloomberg. 

‘A Trump win and Red Sweep would be the most bullish outcome for the US dollar, while a Harris win with a divided Congress could see the US dollar quickly giving back last month’s strong gains.’ 

A so-called Red Sweep refers to the Republicans winning not only the presidency, but also both houses of Congress.

Anticipation of Trump winning a second term in office had driven the dollar to its largest 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 the Federal Reserve would also keep interest rates higher for longer, which tends to make the dollar stronger.

Experts said the weakening of the dollar Monday was linked to a poll which showed Harris with a three-point lead in Iowa, a state which was previously dominated by Trump

Wall Street had been increasingly positioning for a Trump win , and buying stocks which would benefit from a Republican victory

Trump’s immigration policy is drawing particular concern for how it could drive up inflation. 

After peaking at 9.1 percent in June 2022, inflation is now easing toward the Federal Reserve’s 2 percent target. 

Economists warn that deporting immigrant workers, as Trump proposes, could actually worsen inflation.

A study from the nonpartisan Peterson Institute for International Economics said that deporting immigrants would reduce economic output and increase the rate of inflation.

With fewer workers available, businesses would have to either raise wages, hike prices, or accept slimmer profits. 

A separate study by economists at the University of Colorado found that for every one million unauthorized workers expelled from the US, 88,000 American workers lost their jobs during the Bush and Obama administrations.

Supporters of Trump’s immigration proposals say the economy will be better off if Americans are able to earn more doing jobs which are currently being carried out by foreign workers.

But the research found that immigrant workers in industries including hospitality and agriculture often do not compete with native-born workers. 

That means if they are expelled from the country, the businesses are likely to scale back production rather than hire more US workers.  

‘If he does the things he says he’s going to do, straight up, he will be hitting the US economy with a negative supply shock,’ Adam Posen, president of the Peterson Institute, told The Wall Street Journal.  

‘Prices will go up, and the capacity of the economy to supply goods and services will go down,’ he said.