As Donald Trump’s odds of clinching the White House increase, there is an emerging correlation with the markets, both in traditional finance and cryptocurrencies.
In this case, with his odds strengthening, the U.S. dollar and government bond yields have moved in tandem, suggesting a potential relationship between Trump’s prospects and market sentiment, according to data by Bloomberg.
Since mid-September 2024, as Trump’s betting odds on prediction market platform Polymarket climbed, the Bloomberg Dollar Index surged by 2.5%, reflecting the dollar’s strengthening against other major currencies.
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Similarly, the U.S. 10-year Treasury yield has risen, climbing 60 basis points during the same period.
Is the market pricing in a Trump win?
Although the election is considered close, these movements suggest that markets may be pricing in the impact of a potential Trump victory, particularly regarding his economic policies.
As a reminder, Trump’s past economic policies, such as tax cuts, deregulation, and trade tensions with China, significantly impacted markets, influencing interest rates and currencies.
Investors might be expecting similar effects if he returns to the White House, which could shape inflation and Federal Reserve policy. Rising bond yields reflect concerns over increased inflation and higher government borrowing.
Several market players are also predicting how the market might react if the businessman is re-elected.
For instance, in an X post on October 21, strategist Robin Brooks noted that if the Republican nominee emerges victorious, there could be widespread depreciation pressure on emerging market currencies, many of which have dollarized economies. This would likely drive up the value of the U.S. dollar.
Trump’s economic policies impact
This outlook aligns with a survey indicating that professional investors believe Trump might benefit the stock market.
Part of the bullish sentiment is linked to Trump’s proposal to lower corporate income tax from 21% to 20% and potentially as low as 15% for domestic manufacturing companies.
Conversely, there are concerns that the stock market might crash if Kamala Harris wins and implements her proposed 28% corporate tax hike.
In the same breadth, Duquesne Family Office founder and hedge fund manager Stanley Druckenmiller observed that the markets are “very convinced Trump is going to win.”
Trump’s odds are also reflected in Bitcoin (BTC) price movements. Finbold earlier reported that as his chances of winning increased, Bitcoin’s price surged in tandem.
The trend correlates with the former president’s expressed support for the crypto space. If elected, he intends to make the United States an innovation hub for digital assets.
However, caution is advised, as there are concerns that prediction markets might be manipulated, which could lead to misleading market reflections.
