Dollar-positive risks from US election outcome “moderate”, UBS says

Investing.com — The US dollar is generally trading above its implied fair value, potentially hinting at support from a recent uptick in the chances that Donald Trump will win November’s US presidential election, according to analysts at UBS.

However, they noted that the greenback remains within its standard deviation bands, which help account for volatility in movements in the currency. This suggests that “any dollar-positive election risk premium is still moderate,” the analysts said.

Over the past month, a gauge comparing the dollar to a basket of its currency pairs has climbed by more than 3%.

The move comes as prediction markets like Kalshi and PredictIt show Trump is the clear favorite to emerge victorious following the Nov. 5 ballot.

However, these bets have received some scrutiny because they have diverged from national polling averages, which indicate that Trump’s Democratic rival Kamala Harris holds a narrow advantage with only two weeks of campaigning left. Crucially, both candidates are all but tied in several key battleground states that are tipped to have a heavy impact on the outcome of the election.

A victory for Trump, who has called for tax cuts, looser financial rules and sweeping tariffs, could provide some support to the dollar, analysts have said. For example, his proposal to impose a blanket levy on imports into the US could dent Asian and European exporters, possibly leading local central banks to slash interest rates. This would, in turn, potentially weaken their currencies and bolster the dollar.

Speaking to Bloomberg News last week, Trump dismissed concerns these trade policies would hit the US economy, arguing that they would instead help “bring companies back to our country”.

Outside of the election, analysts cited by Reuters have said the dollar has been boosted by expectations that overseas central banks will likely have to cut interest rates deeply because their economies are not growing as fast as the US. Meanwhile, uncertainty still surrounds the pace of the Federal Reserve’s much-anticipated policy easing cycle following a jumbo 50-basis point rate reduction by the central bank in September.

(Reuters contributed reporting.)