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The stories that matter on money and politics in the race for the White House
The dollar surged the most in two years and US bond yields jumped as investors strengthened bets that Donald Trump will retake the White House.
The US currency raced higher against the euro, the yen and the pound on Wednesday as traders returned to the so-called “Trump trades” based on expectations that the former president’s plan to raise tariffs and cut corporate taxes will push up inflation and keep interest rates high.
While several key states remained too close to call, investors seized on Trump’s victories over Kamala Harris in the southern battleground states of Georgia and North Carolina.
“For FX, more than other markets, there’s very clear directionality in a Trump versus Harris plan,” said Skylar Montgomery Koning, currencies strategist at Barclays in New York, pointing to expectations that the former president’s plans would be inflationary.
The dollar index, a measure of the currency against a basket of rivals, was up 1.5 per cent, its biggest one-day gain since September 2022.
The yield on the 10-year Treasury reached 4.46 per cent, its highest since early July, while that on the 30-year “long bond” reached 4.63 per cent, up 0.15 percentage points for its biggest daily move in more than a year.
In a sign that investors are positioning for a Trump victory, the Mexican peso, which is seen as particularly vulnerable to the Republican’s plans to slap tariffs on imports into the US, slumped as much as 3 per cent against the dollar, to a low of 20.73.
“Trump’s tariffs, if he wins and if he goes ahead, have the potential to cause a huge amount of pain,” said Ray Attrill, global co-head of FX strategy at National Australia Bank in Sydney, who cautioned against investors moving too quickly.
“If it’s Trump, then it’s still going to be a long time before we know whether tariffs are a negotiating tactic or if he’d pull the trigger early on,” Attrill added.
In currency markets, the steep declines in the yen drove a rally in Japan’s export-focused stock market, with the Nikkei 225 index up 2.3 per cent.
Chinese markets fell. Hong Kong’s Hang Seng index dropped 2.5 per cent, led lower by mainland Chinese companies. The offshore renminbi, for which the People’s Bank of China does not set a daily fixing rate, weakened by 1 per cent against the dollar, while the onshore equivalent fell 0.7 per cent.
“Investors are somewhat prepared for potential headwinds from a second Trump administration”, said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas. “We may still see some initial risk-off price action in the event of a bigger-than-expected margin of victory for Trump or a Red Wave before the subsequent policy responses emerge from China’s NPC.”
The standing committee of China’s rubber-stamp parliament, the National People’s Congress, is meeting until Friday and is expected to confirm the size of its fiscal stimulus, aimed at reviving growth in the world’s second-largest economy.
Bitcoin surged more than 7 per cent to a record high of $75,060, making the world’s largest cryptocurrency one of the biggest movers across markets. Trump has positioned himself as the pro-cryptocurrency candidate, pledging to make the US “the bitcoin superpower of the world”.