Global Economy on High Alert Ahead of US Election
As the world waits with bated breath for the outcome of the US presidential election, investors are bracing themselves for a potential seismic shift in the global economy. The dollar has taken a hit, slipping against major currencies as markets prepare for a possible pivot in economic policy.
Euro Surges Amid Dollar Weakness
The euro has capitalized on the dollar’s decline, surging 0.5% to $1.0891 and threatening to break through resistance at $1.0905. Meanwhile, the dollar has fallen 0.6% against the yen, trading at 152.60. The dollar index has also eased, dropping 0.1% to 103.80.
Treasury Yields Plummet
US Treasury yields have retreated, shedding 5 basis points to retrace some of Friday’s gains. This comes as investors anxiously await the outcome of the election, with Democratic candidate Kamala Harris and Republican Donald Trump neck and neck in the polls.
Markets Prepare for Volatility
Analysts warn that the next two days will be marked by abnormal swings in USD crosses, driven by tightening volatility conditions ahead of the closely contested election. ING FX strategist Francesco Pesole notes that markets are scaling back some Trump trades, leading to a potential dip in the dollar.
Betting Odds Shift in Favor of Harris
According to betting site PredictIT, Harris has taken a surprise 3-point lead in Iowa, thanks largely to her popularity with female voters. This has led to a shift in betting odds, with Harris now priced at 53 cents to Trump’s 52 cents.
Implications of a Trump or Harris Win
A Trump presidency with full control of Congress could lead to a solid sell-off in Treasuries, driving the USD higher. On the other hand, a Harris win and a split Congress would likely result in ‘Trump trades’ being quickly reversed, leading to a decline in the USD, gold, bitcoin, and US equities.
Federal Reserve to Cut Rates
Uncertainty over the election outcome has led markets to assume that the Federal Reserve will cut interest rates by 25 basis points on Thursday. Traders have fully priced in this move, with an 83% probability of a similar-sized cut in December.
Global Central Banks Take Action
The Bank of England is expected to cut rates by 25 basis points on Thursday, while the Riksbank is seen easing by 50 basis points. The Norges Bank is expected to hold rates steady, and the Reserve Bank of Australia will also meet on Tuesday to discuss its monetary policy.
China’s Stimulus Package
More stimulus is expected from China’s National People’s Congress, which is meeting from Monday through Friday. The implied volatility of the one-week dollar/offshore yuan has jumped to a record high, highlighting anxiety over the US election outcome on Sino-US trade. Beijing is considering approving the issuance of over 10 trillion yuan in extra debt to revive its fragile economy.
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