(Bloomberg) -- A gauge of the dollar fell the most since late August and Treasury futures rose as polling data ahead of Tuesday’s US elections prompted some investors to pare the so-called Trump trades.
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The Bloomberg Dollar Spot Index dropped as much as 0.7% on Monday, while Treasury futures edged higher with the cash market closed due to a holiday in Japan. The Mexican peso rose more than 1% to lead gains among emerging-market currencies, underscoring how some investors are re-thinking the odds of a clear victory of Republican candidate Donald Trump.
They are also re-evaluating bullish dollar wagers — long favored as a prime play for Trump’s win - after weekend polling numbers suggested his Democratic rival Kamala Harris might be edging ahead in some swing states. The overall race is still neck and neck with no clear winner, adding to risks of amplified market swings when voting begins.
“Markets are pricing in a higher chance of a Harris win now, which is consistent with the moves in the PredictIt betting market,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “That means the scope for dollar strength is now higher in the event of a Trump win.”
The dollar declined against all its Group-of-10 peers, with the Norwegian krone and Australian dollar advancing 0.9%. In Asia, the yen rose 0.9% while the onshore yuan gained as much as 0.6%, the most since early August.
Emerging market investors had been bracing for the fallout of a potential Trump victory, as his plans to enact tariffs would weaken their exports and demand for their currencies.
“After going into the weekend pricing in about a 42% probability of a Republican sweep, markets are less certain this morning and have hastily stripped out some of the premium built into the ‘Dollar Trump Trade’,” Tony Sycamore, analyst at IG Markets, wrote in a note.
A Des Moines Register/Mediacom Iowa poll showed Harris with a 3 percentage-point lead in the state over Trump. The survey, conducted by famously reliable pollster Ann Selzer, is viewed as a bellwether for how Harris may perform in nearby Wisconsin, particularly among women.
Still, Harris’ advantage across all of the surveys was within the margin of error, and a NBC News poll released Sunday showed the race deadlocked.
“The stage looks set for a binary reaction,” Peter Dragicevich, strategist at Corpay, wrote in a note. A Trump win is “likely to see the dollar strengthen given his policy platform, with a Harris victory expected to weigh on the dollar.”
(Updates throughout.)
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