Trump = Stronger Dollar

Image © Gage Skidmore. Source: Donald Trump Official.


The Dollar is rising because markets see an increasing chance that Donald Trump will win the November election.

This is according to an analysis of recent foreign exchange developments conducted by ING Bank and others.

"For the second time in five days, we saw the dollar rallying on the back of higher perceived chances of Donald Trump winning the US presidency, this time after a favourable Supreme Court ruling," says Francesco Pesole, FX Strategist at ING.

The Pound to Dollar exchange rate started the week with gains as investors bought European assets on signs no single party would win a majority in the French legislative elections that will conclude on Sunday. Gains were erased as the day proceeded, and the pair is quoted at a five-day low at 1.2613 at the time of writing on Tuesday.



"It is now clear that investors have made the Trump-stronger dollar link," says Pesole.

The U.S. Supreme Court on Monday ruled former presidents are entitled to absolute immunity from prosecution for official acts taken while in office but have no immunity for unofficial acts.



The landmark decision means the federal election interference case against Donald Trump will return to a lower court which will then decide how to apply this ruling.

The trial in that case was postponed pending a ruling on the immunity claim and will now likely be delayed further, clearing another obstacle to Trump's return to the White House.

"The U.S. Supreme Court granted Trump some immunity for trying to reverse the 2020 election results, making it unlikely he will face trial before the November vote," explains Pesole. "For the second time in five days, the dollar is appreciating on the back of higher perceived chances of Donald Trump winning the U.S. presidency."

ING explains that the Dollar is likely to benefit under a Trump regime, given the prospect of lower taxes, inflationary protectionism measures and greater geopolitical risks.

"With former president Trump cruising toward a second term and his party seen gaining control over both houses of Congress, markets think increased tariffs, reduced immigration, and lower taxes will lead to higher inflation, larger deficits, and more Treasury issuance," says Karl Schamotta, Chief Market Strategist at Corpay.


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If re-elected, Trump has promised more tariffs, levying a flat 60% against Chinese goods and 10% against products from the rest of the world.

The tariffs will be passed on to consumers and raise inflation, potentially frustrating the Federal Reserve's attempt to lower the headline rate to 2.0%. Markets are betting this would require interest rates to stay higher in the U.S. for longer, boosting demand for U.S. bonds by foreign investors, which increases demand for dollars.

"We have been bullish on the USD throughout the year on the premise that the Fed will cut slower than other central banks and that the dollar was under-pricing the U.S. election. The dollar’s rally in recent days is arguably in part due to the market finally starting to price a higher risk premium on this event," says George Saravelos, an analyst at Deutsche Bank.

Nate Silver - one of the most respected pollsters in the U.S. - says his model shows a clear increase in support for Trump since last week's televised debate with Joe Biden.

"We've got a string of polls in... they’re mostly poor for Joe Biden, and they’re beginning to have a bigger impact on the model... Trump now leads by 2.7 points in our national average. And Biden’s win probability has dropped to 28% from 35% on debate night," says Silver.