Investors are bracing for an uncertain trading week as the US election approaches

Investors around the world are bracing for a week of volatile trading in financial markets ahead of one of the most closely fought US elections in history.

As voters in the world’s largest economies prepare to go to the polls on Tuesday, the dollar and US Treasury bond yields fell on Monday as investors bet on a Donald Trump victory.

The greenback dipped 0.6% against a weighted basket of currencies, hitting a two-week low after a surprise poll showed Kamala Harris ahead in Iowa, the former expected to be a safe state for Republicans.

The yield – essentially the interest rate – on 10-year US Treasury bonds fell nearly nine basis points to 4.28%.

Trump has been ahead of the betting markets, despite tracking opinion polls, leading to what Wall Street has dubbed the “Trump business” – a bet that his policies could lead to strengthening of share prices, Treasury yields and the dollar.

Analysts expect that Trump’s proposals for foreign punitive tariffs could restore inflationary pressures in the US, slowing the pace of interest rate cuts from the Federal Reserve. Markets expect the Harris administration to be more or less the same.

Expectations of a Trump victory boosted the dollar rally in recent weeks, although figures on Friday showed an unexpectedly weak reading from the US jobs market, something that could urged the Fed to cut interest rates when policymakers convene after the election. set the cost of borrowing on Thursday.

Investors say the presidential race going down the drain means financial markets are set for a volatile week, with analysts at Deutsche Bank suggesting it could be the closest race in American history. “If it’s close, wait a few days,” said Jim Reid, an analyst at the bank.

He said some key swing results could be seen within the first 24 hours after polls close on Tuesday, but others could take longer, with the possibility of a recount.

Brad Bechtel, an analyst at Jefferies, said: “I don’t think anyone has any idea what’s going to happen, even though a lot of ink has been spilled trying to strategize around it. so, it will take a few days to clear up all the uncertainty, with things very close to calling. With any luck we get a decisive victory one way or another, so we all I went on, but I’m not holding my breath for that.”

As investors brace for major market moves, the Bank of England is expected to move forward on Thursday with a quarterly interest rate cut from the current level of 5% during the recession while inflation and slow growth in the UK economy.

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after the news release

The central bank is expected to pay attention to Rachel Reeves’ budget measures announced last week, amid market expectations that Labor’s stimulus and borrowing plans could slow the pace of interest rate cuts in months coming.

Investors had expected the base rate to be cut five times to 3.75% before the end of next year, but it moved after the budget cut to 4%, which which shows the potential that Reeves’ plans will add to inflation and the economy. growth.

Thomas Watts, senior investment analyst at fund manager Abrdn, said: “While the fallout from the US election may derail anything that happens in the market, the combination of media and politics could create a firestorm for investors. , right. a week with Bonfire Night.”