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US elections front of mind

Published 2024-11-04, 06:20 a/m
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USD

Trump trades are front of mind this morning, with election day set for tomorrow and several notable polls released over the weekend. Specifically, high-quality polls from NYT/Siena surveying all seven of the likely swing states, and a Selzer poll of Iowa, both delivered results that if replicated in practice, would result in a Harris victory in the presidential election. On the one hand, this weighs against the mass of polling that has generally been favourable for Trump over recent weeks. On the other, there is evidence of herding amongst pollsters, and early voting indicators would seem better on balance than most polls have indicated. Taken as a whole, we think the race looks close to a coin flip to us at this juncture, with Trump perhaps a marginal favourite. But this shift is seeing markets paring back Trump trades this morning, a dynamic that has seen the DXY index shed close to 0.5% compared to where it ended last week. This is unlikely to change ahead of election day either, leaving markets holding their breath, with the result likely to become clear at some point in the early hours of Wednesday morning.

EUR

A light data calendar to start the week combined with elections on the other side of the Atlantic, should keep euro trades squarely focused on the likely outcome of the US election over the coming days, rather than domestic data outturns. A Trump victory and the risk of tariffs is almost certain to drag EURUSD lower later this week, while a relief rally is the most probable outcome for the pair in the event of a Harris win.

GBP

While the US elections are naturally the main event of the week, sterling traders will also be keeping one eye on the Bank of England, where a rate decision is due on Thursday. We fully expect a 25bp rate cut, with the MPC having stood pat in September. But the path forward remains an open question, albeit risks look skewed towards an easing pace of once per quarter when considering the recent UK budget announcements. Admittedly, given the confounding effect of the presidential election, we suspect that the MPC will avoid offering any concrete forward guidance later this week. But a Bank staff assessment of the Government’s tax and spending plans will nevertheless be informative – and will likely hint that higher spending will require a marginally slower easing pace, going some way to confirming the current market bias – an outcome that should be positive for sterling at the margin.

CAD

From a domestic point of view, PMIs on Tuesday and jobs data on Friday are the major Canadian data points of note this week. That said, like most other countries, this data should be overshadowed by the question of who the next US president will be. Roughly speaking, the US accounts for around three-quarters of Canadian exports. A 10% Trump tariff on this trade would be a significant negative blow to a Canadian economy that is only just eking out growth at present, and this is only sustained in positive territory by exceptionally high rates of population growth. As such, a Harris victory this week would likely see a significant relief rally for the loonie with tariff risks taken off the table. A Trump win in contrast poses notable upside risks for USDCAD – both on the disruption to trade, but also the probable snowball effects stemming from a large negative shock to the Canadian economy.

This content was originally published by our partners at Monex Canada.

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