Dollar surges to near 4-mth high, Asia FX slides as Trump leads in early voting

The dollar surged to a near four-month high on Wednesday, while Asian currencies fell across the board as early vote counting showed Donald Trump squarely in the lead in the 2024 presidential election. 

The Japanese yen and the Chinese yuan were among the worst hit by this trend, with reports indicating that the Chinese government had intervened to stem further yuan weakness. 

Broader Asian currencies also weakened substantially as markets braced for a second Trump presidency, which could potentially keep interest rates high and the dollar strong in the coming years.  Dollar rallies as Trump leads in early voting 

The dollar index and dollar index futures surged nearly 1.4% each in Asian trade, reaching their strongest levels since early-July.

Coverage of early vote counting by the Associated Press showed Donald Trump well ahead of Kamala Harris with 198 electoral votes, compared to Harris’ 112 votes.

Trump was also seen leading in key battleground states including North Carolina, Georgia, Pennsylvania and Wisconsin. 

A Trump presidency is expected to see increased U.S. protectionist policies, likely spurring more strength in the dollar. Trump is also expected to enact more inflationary policies, keeping interest rates higher in the long-term.

U.S. Treasury yields also shot up on this notion, with the 10-year rate hitting a four-month high.  Chinese yuan weakens amid reports of intervention

The Chinese yuan weakened on Wednesday, with the USDCNY pair rising 0.6%. The yuan’s offshore USDCNH pair rose 0.8%. 

Trump has vowed to impose steep tariffs against China if reelected, presenting a tougher outlook for the yuan if he wins the presidency.

Reuters reported that major Chinese state banks were selling dollars in the open market to stem further yuan weakness.

Focus this week is also on a meeting of China’s National People’s Congress, where the government is widely expected to approve more fiscal spending for the coming years. 

Broader Asian currencies weakened sharply on the prospect of a Trump victory. The Japanese yen was walloped by this trade, with the USDJPY pair surging 1.6% to an over three-month high. Weakness in the yen also kept traders on edge over potential currency market intervention by the government, following recent verbal threats from ministers.

The Australian dollar’s AUDUSD pair slid 1.5%, while the South Korean won’s USDKRW pair surged 1.6%. 

The Singapore dollar’s USDSGD pair rose 1.4%, while the Indian rupee’s USDINR pair steadied just below record highs.

Source: Investing.com