Dollar surges and US bond yields jump as investors bet on Trump win

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The dollar surged the most in two years and US bond yields jumped as investors piled into bets that Donald Trump would retake the White House.

The US currency raced higher against the euro, the yen and the pound on Wednesday as traders returned to the so-called “Trump trades” based on expectations that the former president’s plan to raise tariffs and cut taxes would push up inflation and keep interest rates high.

Wall Street was also on course for gains at Wednesday’s open, with S&P 500 futures climbing 1.7 per cent.

While a few key states remained too close to call, investors seized on Trump’s victories over Kamala Harris in the southern battleground states of Georgia and North Carolina.

“The Trump trade’s back on,” said Francesco Pesole, a currency strategist at ING. “It look like markets are pricing in a clean sweep or close to it,” referring to a scenario where the Republicans emerge with control of both houses of Congress. Such an outcome would further feed dollar strength, he said.

The dollar index, a measure of the currency against a basket of rivals, was up 1.5 per cent, its biggest one-day gain since September 2022.

The pound was 1.4 per cent lower against the dollar at $1.286, while the euro fell 1.9 per cent to $1.072.

The yield on the 10-year Treasury reached 4.46 per cent, its highest since early July, while that on the 30-year “long bond” reached 4.63 per cent, up 0.15 percentage points for its biggest daily move in more than a year.

In a sign that investors were positioning for a Trump victory, the Mexican peso, which is seen as particularly vulnerable to the Republican’s plans to slap tariffs on imports into the US, slumped as much as 3 per cent against the dollar, to a low of 20.73.

“Trump’s tariffs, if he wins and if he goes ahead, have the potential to cause a huge amount of pain,” said Ray Attrill, global co-head of forex strategy at National Australia Bank in Sydney.

“If it’s Trump, then it’s still going to be a long time before we know whether tariffs are a negotiating tactic or if he’d pull the trigger early on,” Attrill added.

In currency markets, the steep declines in the yen drove a rally in Japan’s export-focused stock market, with the Nikkei 225 index up 2.3 per cent.

The yen weakened more than 1.5 per cent to take it to ¥154 to the US dollar.

Chinese markets fell. Hong Kong’s Hang Seng index dropped 2.5 per cent, led lower by mainland Chinese companies. The offshore renminbi, for which the People’s Bank of China does not set a daily fixing rate, weakened by 1 per cent against the dollar, while the onshore equivalent fell 0.7 per cent.

“Investors are somewhat prepared for potential headwinds from a second Trump administration”, said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas. “We may still see some initial risk-off price action in the event of a bigger-than-expected margin of victory for Trump or a Red Wave before the subsequent policy responses emerge from China’s NPC.”

Bitcoin surged more than 7 per cent to a record high of $75,060, making the world’s largest cryptocurrency one of the biggest movers across markets. Trump has positioned himself as the pro-cryptocurrency candidate, pledging to make the US “the bitcoin superpower of the world”.