Investors betting on Trump’s 2024 win fuel a US dollar surge, with the currency up over 4% since late September. Strong US economic data and speculation about Trump’s inflationary policies drive the rally. Media, once critical, now calls Trump a ‘political genius.’
Certainly, there has been a rally by the US dollar on international markets. From a value of ฿32.36 on September 27th, by October 23rd the dollar was reported trading at ฿33.82 against the Thai currency. At the same time, there are a number of reasons for this, in particular stronger-than-expected US economic data. Essentially, this means that the urgency of future US interest rate cuts is less pronounced. However, political commentators are certainly linking it to a rise in the prospect of former President Donald Trump winning the US election on November 5th. In the meantime, there does seem to be momentum in Trump’s campaign at this time. Worldwide media outlets are referring to the US leader as more ‘authentic’ than his rival, while others, formerly critical of Trump, are now hailing him as a ‘political genius.’
The US dollar has surged to its strongest level since August. This rally is driven by strong economic data and rising investor confidence in Donald Trump’s chances of returning to the White House.
Since late September, the currency has appreciated by over 4% against a basket of global rivals. In particular, 4.51% against the Thai baht. This increase has been fueled by positive jobs reports and changing expectations for Federal Reserve rate cuts.
Analysts say the rally is not just about economic performance. Speculation about Trump’s potential economic policies, if he wins the November 5 election, also plays a key role. Recent reviews of his chances by internal publications had described Trump as more authentic.
At the same time, The Atlantic, often critical of Trump, has now heralded him as a ‘political genius’ as his fortunes rise.
Strong US jobs report prompts investors to scale back expectations of aggressive Federal Reserve rate cuts
The dollar’s recent momentum started with a strong US jobs report earlier this month. The robust labour market data made investors rethink their expectations for Federal Reserve policy.
This reduced the likelihood of significant rate cuts in the near term. As a result, the dollar’s strength has been reinforced. Initially, traders were betting on a series of rate cuts through the end of the year.
However, with the US economy proving resilient, those bets have been scaled back. Now, market participants expect only one or two more rate cuts this year, a shift from earlier expectations of aggressive easing.
Besides economic data, a “Trump trade” has emerged among investors. Many are factoring in the possibility of a second Trump administration. Despite Trump’s stated goal of weakening the dollar, his economic policies could push the currency higher.
Trump’s economic policies could lead to higher inflation and strengthen the US dollar if he wins
Trump’s plans to raise tariffs, curb immigration, and cut taxes are seen as inflationary. These policies could lead to higher interest rates if Trump wins another term.
A Republican sweep of Congress would further enable such policies, which could strengthen the dollar. Lee Hardman, a senior currency analyst at MUFG, commented, “The markets are moving to price in a greater probability of a Trump victory.”
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Recent swing-state polls and betting markets have shown momentum for the former president. Thierry Wizman, global foreign exchange strategist at Macquarie, highlighted two pillars of the dollar’s rise.
First is the ongoing strength of the US economy, or what he calls “American exceptionalism.” Second is the increasing expectation of a “Trump trade,” which would likely reduce the number of rate cuts by the Federal Reserve in the coming years.
Changing election odds have driven investor sentiment and hedge funds to sustain dollar-buying streaks
Investor sentiment ahead of the US election has been key to the dollar’s rally. Citi reported that its hedge fund clients are on their longest dollar-buying streak in two years. This shift has been driven by changing election odds.
Barclays noted that political factors are playing a large role in the dollar’s gains, beyond just changes in Fed expectations. Trump’s policies have often been linked to market volatility, especially in sectors sensitive to tariffs.
Despite his preference for a weaker dollar, many investors believe his policies could lead to a stronger one. A Republican “red sweep” could drive inflation higher and limit future rate cuts, strengthening the currency further.
Expectations of fewer Federal Reserve rate cuts have impacted other financial markets. Yields on US government bonds have risen, with the 10-year Treasury yield hitting 4.22% on Tuesday, the highest since July.
This rise reflects reduced expectations for significant rate cuts, which tend to push bond prices down and yields up. The shift in bond market expectations has also triggered a spike in volatility.
The Ice BofA Move Index, which tracks volatility in the US government bond market, reached its highest level since the end of last year. Traders have scrambled to adjust their positions as market dynamics shift.
Analysts remain cautious about the dollar’s future strength due to uncertainty surrounding the election
Despite the dollar’s rally, many analysts remain cautious. The upcoming US election still holds significant uncertainty.
Tim Baker, head of FX research for the Americas at Deutsche Bank, believes a Trump victory could boost the dollar, but he acknowledges that the election outcome is too uncertain to predict.
Mark McCormick, global head of FX strategy at TD Securities, warns that the election is a “binary event with huge tail risks on either side.” He emphasises the potential for significant market volatility, regardless of the outcome.
The US dollar’s recent surge reflects a mix of strong economic data and rising speculation about Trump’s potential return to office. While these factors have fueled the dollar’s gains, the future remains uncertain.
Investors are weighing the possibility of a Trump victory and its likely impact on inflation and interest rates. However, with the electoral outcome unpredictable, significant risks remain.
For now, the dollar’s strength highlights both economic resilience and political calculations, with both playing critical roles in the market over the next few weeks.
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Further reading:
Trump reaches out to US expats in Thailand to help win the election. No double taxation pledge
Trump returns defiant to the stage of Butler Pennsylvania where Trump suggested a plot to kill him
2nd Trump term would spell a massive shift by the US towards protectionism. It’s called Maganomics
Second assassination attempt on President Trump sees shots fired. 58 year old suspect is arrested
Harris turns on the money taps as experts say the 2024 election will be even tighter than 2020
Trump pulls out all the stops as buoyant Kamala opens up a lead in three key battleground states
