Closing summary: Dollar weakness as US election remains a toss-up
There is the deep uncertainty over the US election result, with most respected probability models showing a 50/50 chance of Kamala Harris or Donald Trump triumphing.
But what economists do mostly agree on is that a Trump victory would likely be inflationary. That would strengthen the US dollar.
The dollar’s decline on Monday – down 0.6% so far – has come in response to polls suggesting that Harris’s odds are slightly better than previously thought. But it is still a toss-up.
Rupert Thompson, chief economist at Iboss, a financial adviser, said:
Trump remains the favourite at this stage although it remains far too close to call, particularly as the polls over the weekend showed some move back towards Harris.
If Harris wins, the reaction might well be a collective yawn, except for the fact that any victory would no doubt be very close and subject to vehement challenge by Trump and his supporters. She would be very unlikely to gain a clean sweep (ie the Democrats control Congress as well as the Presidency) severely limiting her ability to enact her plans to cut taxes and increase spending.
If Trump wins, the market reaction is more uncertain. Again, it will partly depend on whether he gains a clean sweep which is more likely for Trump than Harris. If he doesn’t, this would constrain his room to cut taxes but not alter his ability to increase tariffs. A Trump victory is likely to lead to a rather stronger dollar and higher government bond yields because his plans to raise tariffs sharply would boost inflation and reduce the willingness of the Fed to reduce rates.
Jonas Goltermann, deputy chief markets economist at Capital Economics, a consultancy, wrote that “whatever the outcome” this week is “likely to prove volatile”.
We think the near-term effect of a Trump win would be a stronger dollar, especially if accompanied by Republican control of Congress, while a Harris win would lead to a weaker greenback. That would be in line with what happened immediately after the last two US elections.
You can continue to follow our coverage from around the world – including the last day for Harris and Trump to make their mark:
In the US, Harris and Trump converge on the rust belt on final day of campaigning
In the UK, Labour is set to raise tuition fees amid deepening university financial crisis
In our coverage of the Middle East crisis, Israel claims to have killed Hezbollah commander inside Lebanon
Thank you for following today, and please do join us tomorrow for more live coverage of financial markets as we brace for the US election result. JJ
Wall Street is in wait-and-see mode ahead of tomorrow’s US election: there is barely any movement on the major stock indices.
Here are the opening snaps, via Reuters:
S&P 500 UP 0.84 POINTS, OR 0.01%, AT 5,729.64
NASDAQ DOWN 18.20 POINTS, OR 0.10%, AT 18,221.71
DOW JONES DOWN 45.20 POINTS, OR 0.11%, AT 42,006.99
