Dollar Stands Tall on Bets for Slower Fed Cuts, Potential Trump Win

The U.S. dollar has been on a tear recently, reaching two-month highs as investors bet on a potential Trump re-election and a slower pace of interest rate cuts by the Federal Reserve. The strengthening dollar has significant implications for global markets and currencies, as well as for countries like South Korea, Mexico, and China that are heavily exposed to U.S. trade.

The U.S. presidential election is now just 20 days away, and the race between former President Trump and Vice President Harris is too close to call. However, the shift in betting odds towards Trump has boosted the dollar, with the U.S. dollar index extending its 2.5% rally so far in October. The USD index hit the highest level since 2 August, reaching 103.5.


The rise in the dollar is also driven by expectations of a slower pace of interest rate cuts by the Federal Reserve. Recent U.S. economic indicators suggest that the Fed may not need to cut rates as aggressively as previously expected, which could lead to a stronger dollar.

The strengthening dollar has significant implications for countries that export goods to the U.S. and rely on U.S. imports. For example, South Korea's won-dollar exchange rate has climbed more than 60 won this month, approaching the 1,370-won mark. This could reignite inflation and slow down the pace of interest rate cuts in South Korea.


Trump's trade policies, such as tariffs, could further strengthen the U.S. dollar and impact the currencies of U.S. trading partners. If Trump wins the election and implements protectionist policies, it could lead to a stronger dollar and put pressure on countries like Mexico and China, which are heavily exposed to U.S. trade.

Trump's fiscal policies, such as tax cuts, could also impact the U.S. dollar and global currencies. If Trump wins and the Republican Party takes control of Congress, it could lead to more bond issuance and higher bond yields, further strengthening the dollar.

Geopolitical risks, such as Middle East tensions, also play a role in the USD index's response to election betting odds. The safe-asset preference due to geopolitical risks and foreign investors' sell-off of South Korean stocks have contributed to upward pressure on the won-dollar exchange rate.

In conclusion, the strengthening U.S. dollar has significant implications for global markets and currencies. The shift in betting odds towards Trump and expectations of a slower pace of interest rate cuts by the Federal Reserve have boosted the dollar, which could impact countries like South Korea, Mexico, and China that are heavily exposed to U.S. trade. As the U.S. presidential election approaches, investors and policymakers alike should closely monitor the impact of election betting odds on the U.S. dollar and global currencies.