Key Insights:
- Dollar and cryptocurrencies surge as Trump’s election odds increase, impacting global currency markets and Treasury yields.
- Trump’s potential victory boosts investor confidence in crypto, with Bitcoin and Ether seeing significant gains.
- Global currencies react to U.S. election speculation, with the euro, pound, and Chinese yuan facing declines.
The dollar strengthened significantly on Monday, accompanied by a notable rise in cryptocurrency prices, as market sentiment shifted towards a potential victory for Donald Trump in the forthcoming U.S. presidential elections.
This change in market dynamics followed an attempted assassination of the former president during a campaign rally in Pennsylvania. Trump, 78, sustained a wound to his right ear but is reported to be in stable condition.
This incident has galvanized investor sentiment, driving up the dollar and U.S. Treasury yields. The potential increase in sympathy votes for Trump has led investors to narrow the odds of his victory in November, impacting financial markets globally. Vasu Menon, managing director of investment strategy at OCBC, commented on the potential for increased voter turnout among Trump supporters, which could sway the election in his favor.
Market Movements and Betting Odds
The online betting platform PredictIT reported an increase in the likelihood of a Republican victory, with odds rising to 66 cents from 60 cents on Friday. In comparison, the odds of a Democratic win fell to 38 cents. This shift reflects a perceived doubling of the chances for a Republican win compared to the Democrats.
In response to this sentiment, the euro fell 0.2% against the dollar, settling at $1.0888, while the British pound dipped 0.13% to $1.2973. The U.S. dollar also saw gains against the Norwegian and Swedish crowns, rising 0.48% and 0.35%, respectively.
Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank, noted that a stronger dollar is likely if Trump wins, driven more by weakened major currencies due to U.S. trade and geopolitical strategies rather than the inherent strength of the dollar itself.
Impact on Treasury Yields and Crypto Prices
Expectations of policies under a Trump administration that could increase government debt and drive inflation saw long-dated U.S. bond yields edge higher. The benchmark 10-year Treasury yield rose by approximately three basis points, reaching 4.2158%.
Crypto markets also reacted positively, with Bitcoin (BTC) climbing roughly 3.98% to $62,697 and ether increasing nearly 4.20% to $3,356, per CoinMarketCap data. Despite the lack of specific policy proposals, Trump’s pro-cryptocurrency stance appears to have bolstered confidence among investors in the crypto sector.
Global Currency Reactions and Economic Concerns
The broader impact of these market movements extended to other global currencies. The Australian dollar decreased by 0.1% to $0.6777, and the New Zealand dollar dropped 0.43% to $0.6092. The overall dollar index remained steady at 104.21.
Meanwhile, economic data from China drew significant attention, revealing slower-than-expected growth in the second quarter. The Chinese economy, hindered by a prolonged property market downturn and reduced domestic demand due to job insecurity, saw its new home prices decline at the fastest rate in nine years as of June. The onshore Chinese yuan slipped 0.16% to 7.2626 per dollar.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, indicated that the weakening growth momentum in China’s second quarter suggests additional support measures to achieve the annual growth target of 5%.
China’s high-level policy meeting, held every five years, began on Monday, and market participants are closely monitoring any new policies aimed at stabilizing the economy.
Yen and Potential Market Intervention
The Japanese yen reversed some of its gains from the previous week, standing at 157.88 per dollar after reaching a one-month high of 157.30 on Friday. Speculation of market intervention by Tokyo arose following a cooler-than-expected U.S. inflation report, with Bank of Japan data suggesting a possible expenditure of up to 3.57 trillion yen ($22.4 billion) to support the yen on Thursday.
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