Markets React to Political Uncertainty: Dollar Firms, Treasuries Slip

U.S. Treasuries slipped and the dollar firmed as investors bet on Donald Trump's increased chances of victory after a recent attack. Thin Asian trading saw modest dollar rises and gains for bitcoin. China releases disappointing economic data, while U.S. markets anticipate a Federal Reserve rate cut in September.

U.S. Treasuries slipped and the dollar firmed on Monday as investors wagered the attack on U.S. presidential candidate Donald Trump made his victory more likely, while injecting a whole new level of political uncertainty into markets. A holiday in Japan made for thin trading in Asia, with modest dollar rises and gains for bitcoin, while U.S. bonds saw selling pressure. Benchmark 10-year Treasury yields increased by nearly five basis points in early London trading.

Investors typically react to a potential Trump win by pushing Treasury yields higher, anticipating his economic policies would spur inflation and debt. Proposals for import tariffs could raise prices and impact consumer spending. Meanwhile, immigration restrictions could tighten the labor market and increase wage pressures.

"The market reaction to a Trump presidency has seen a stronger U.S. dollar and a steeper U.S. Treasuries curve, which we might observe if Trump's election chances improve," said Rong Ren Goh, portfolio manager at Eastspring Investments in Singapore. Online betting site PredictIT saw Republican win odds rise to 66 cents from 60, with Democratic chances at 38 cents, suggesting Republicans are twice as likely to win.