Trump trades are in full swing as the counting of US ballots continues. Georgia and North Carolina have been called for US presidential candidate Donald Trump, and he is leading in all other swing states at the moment. The New York Times estimates Trump’s chances of victory are above 95% and now also sees the balance for the popular vote having tilted in favour of the Republicans. That has implications for the House maths, and with the Senate already been called for the Republicans, the base case for financial markets is currently a red clean sweep. Still, the House race remains a very close one, and the Congress split is likely to have deep implications for risk sentiment and the dollar.
The reaction so far in the FX market has been, as expected, a strong dollar across the board. There is no huge divergence across G10 currencies performance, where daily losses amount to around 1.0-1.7% except for the Canadian dollar, which is down by less than 1%. That mirrors a view that a Republican clean sweep is positive for the US economy and, by extension, Canadian exporters, as well as the fact that CAD will be less exposed to tariffs on China and geopolitical developments under a new Trump presidency.
The bear steepening and widespread selloff across the Treasury yield curve mirrors widespread expectations for an inflationary mix of domestic (fiscal and migration) and external (tariffs) policies from Trump. We are also observing some action in the short-term USD swap rates linked to a hawkish repricing in Fed rate expectations. In line with our expectations and consensus, markets are holding on to expectations for a 25bp FOMC cut to 4.75% tomorrow, but the OIS curve has recorded some 10bp+ repricing across 2025 tenors. That embeds a policy rate close to 4.0% in June 2025, almost 100bp higher than mid-September pricing.
We will wait for the election to be called by major US networks before updating our FX forecasts. But if the growing consensus for a Republican clean sweep ends up materialising, we expect a prolonged period of dollar outperformance.
Francesco Pesole
Morocco
