Dollar Strengthens as Trump’s Election Probability Rises in US Presidential Race
Increased Dollar Demand Amid Potential Deepening of America First Policy
Possibility of 'Gradual' US Interest Rate Cuts Also Supports Dollar Strength
Former U.S. President and Republican presidential candidate Donald Trump is pointing straight ahead during a campaign rally in Milwaukee, Wisconsin, on the 1st (local time). [Image source=Yonhap News]
With just two weeks remaining until the U.S. presidential election, the probability of former President Donald Trump's victory has increased, leading to a clear strengthening of the dollar. The won-dollar exchange rate, which had fallen to the low 1300 won range earlier this month due to a base interest rate cut, surged to the high 1300 won range amid economic uncertainty concerns related to Trump's potential reelection.
Won-Dollar Exchange Rate Surges to 1380 Won Range
On the 22nd, the won-dollar exchange rate opened at 1,379.1 won, up 3.9 won from the previous trading day, in the Seoul foreign exchange market. This is the highest level in about two and a half months since it recorded 1,384.5 won on July 31. After opening, the rate continued to rise and was trading at 1,382.05 won as of 9:41 a.m.
The recent global strength of the dollar is also impacting the Korean foreign exchange market. The Dollar Index, which shows the value of the dollar against six major currencies, stood at 104.01 as of the previous day, the highest since August 1.
The dollar's strength is intensifying as the likelihood of Trump's victory in the U.S. presidential election increases. According to predictions by The Hill, a U.S. political media outlet, and Decision Desk HQ (DDHQ), an election specialist site, Trump has a 52% chance of winning this election, ahead of current Vice President Kamala Harris at 42%. Other polls also show a gradually increasing possibility of Trump's victory.
As a result, a so-called "Trump trade" phenomenon is occurring, where investments are flowing into assets such as the dollar, gold, and Bitcoin, which could benefit from a Trump victory. This is because most of Trump's major economic pledges focus on strengthening American prioritization. His key policies, including protectionism, tariff increases, expanded fiscal deficits due to tax cuts, and checks on China, are all considered factors that strengthen the dollar.
Former President Trump has stated his intention to impose a 60% tariff on Chinese goods as well as a general tariff of 10-20% on all imports. He has criticized European car manufacturers, including Mercedes-Benz, claiming that high tariffs on imported cars are the only way to bring manufacturers back to the U.S.
The possibility that a second Trump administration might issue large amounts of government bonds to address massive fiscal deficits is also pushing up U.S. Treasury yields and fueling dollar strength. The 10-year U.S. Treasury yield, which was around 4.08% at 3:30 p.m. the previous day, is currently trading in the 4.19% range amid growing chances of a Trump victory.
Park Sang-hyun, a specialist at iM Securities, explained, "Along with strong U.S. retail sales and stock market performance in September, the rising probability of former President Trump's election is reinforcing the dollar's strength. The rapid rise in Treasury yields despite the Federal Reserve's big rate cut is also a factor expanding the dollar's strength."
Possible Delay in U.S. Base Interest Rate Cut Also Supports Dollar Strength
Speculation that the timing of the U.S. base interest rate cut might be delayed is another factor supporting the dollar's strength. On the 21st (local time), Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated at an event, "While I supported the large rate cut last month, I expect smaller rate cuts at the upcoming meetings."
Dallas Fed President Robert Kaplan also said that "if the economy develops as currently expected, a strategy of gradually lowering the policy rate to a normal or neutral level could help manage risks and achieve goals." As key Fed officials consecutively hinted at slowing the pace of rate cuts, the dollar showed further strength.
Lee Joo-won, an economist at Daishin Securities, analyzed, "The direction of U.S. monetary policy is also currently a pressure factor for dollar strength. The stronger-than-expected U.S. employment, inflation, and consumption indicators released this month have increased the likelihood of the U.S. keeping the base interest rate steady next month."
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