Investing.com – The US dollar has risen sharply in October as traders priced in the rising probability of a Trump victory in the betting markets, according to Standard Chartered (OTC:), meaning a Harris win could trigger a substantial repricing.
At 04:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 104.095 but remains near a three-month high and more than 3% higher this month.
“We find that Trump’s rise in election prospects accounts for approximately 60% of the USD’s October gain,” Standard Chartered analysts said in an Oct. 23 note.
The US presidential elections will take place on November 5, pitting Republican candidate Donald Trump against Democratic candidate Kamala Harris.
“The USD could strengthen further if the odds shift even further towards a Trump victory, although we doubt that a rise of, say, 65%-75% would have the same impact on the USD as a rise of 45%-55%. “, the bank added.
For a Trump victory to have a major impact on asset market prices from now on, we think Republicans will need to win both the House of Representatives and the Senate, according to Standard Chartered. This would give Trump a lot of fiscal flexibility to use the reconciliation process again to pass tax measures, as was the case in 2017.
The probability of a Republican victory in the gambling market is almost 50%. Depending on him winning the presidency, the betting markets estimate about a 75% chance of a sweep.
A Harris win with a divided Congress could be the biggest market move, the bank said.
“She would struggle to get her proposals for tax and social programs passed, and the onus would be on the Fed to provide stimulus if there was any sign of US economic weakness,” Standard Chartered said.
“Given the current positioning, a Harris win would likely lead to the elimination of long positions in the USD.”
Paradoxically, in the event of a Harris victory and a Democratic victory, the impact of exchange rates would be less well determined.
Foreign exchange markets may be unclear on whether to focus on its green and social spending initiatives or on the tax increases that would be needed to finance them.
