Donald Trump and Kamala Harris debated for more than 90 minutes yesterday over a number of key issues including abortion rights, immigration policy and the economy. Unlike the first presidential debate between Trump and Biden, where the latter came out as clearly defeated, this one was not interpreted as ending in any ‘knock out’ win. However, markets seem to have awarded Harris a victory on points, and a CNN poll showed 63% of voters thought Harris won the debate, ING’s FX strategist Francesco Pesole notes.

Trump win can keep a lid on USD gains

“In FX, a Trump win is associated with a stronger dollar, which is trading on the soft side across the board. In the EM space, Asian currencies are the best performers, which is a clear indication of Trump trades being scaled back. Interestingly, USD/CNY is only modestly lower and two key China proxy trades (AUD and NZD) are lagging other G10 currencies.”

“That may be a consequence of Harris opposing Trump’s universal tax plans but still sounding determined to maintain protectionism pressure on China. CEE currencies and the high-beta NOK are also moderately stronger, which could be associated with lower geopolitical risks associated with Russia-Ukraine under Harris. More details on FX sensitivity to US election topics can be found in our US election guide for the FX market.”

“An extension of the presidential debate fallout in markets will get mixed up with the impact of the August inflation report today. The risks do appear slightly tilted to the upside for the dollar, as markets may lean even more in favour of a 25bp cut next week on a consensus (or above) figure, and may instead require a 0.1% MoM figure to push the pricing closer to 50bp. Crucially, 0.1% does not guarantee a 50bp cut in September. However, as highlighted above, lower perceived chances of a Trump win can keep a lid on USD gains, and barring a substantial CPI upside surprise, DXY may struggle to make its way back to 102.0 before the FOMC.”   

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