US dollar index soars nearly 2% to hit 4-month high as Donald Trump takes early lead in polls

The US Dollar Index, which measures the greenback’s strength against a basket of six major currencies, surged by 1.9% to 105.30 on Wednesday, November 6 to its highest level in almost four months. This rally was driven by early reports suggesting that Republican candidate Donald Trump is edging closer to securing a second term in the White House.

In the past few sessions, the Dollar Index was under pressure after polls showed rising support for the Democratic presidential nominee and Vice President Kamala Harris in key swing states, prompting investors to unwind some of their positions betting on Trump’s victory.

However, the actual trends showed that Trump is gaining ground over Harris in several critical swing states, leading to a sharp rebound in the Dollar Index.

According to a Bloomberg report, Trump won both North Carolina and Georgia, flipping the latter state from Democratic control. He also holds a tentative lead in Wisconsin, Michigan, Pennsylvania, and Arizona, where vote counting is still ongoing.

This win gives Trump all 16 electoral votes from North Carolina and Georgia, bringing him closer to the 270 electoral votes needed to secure the presidency. Trump had previously won North Carolina in 2016 with a margin of 3.66% and again in 2020 with a smaller margin of 1.34%. President Joe Biden took Georgia in 2020, whereas Trump won the Peach State in 2016.

Meanwhile, global markets responded positively to the early results favouring Trump. S&P 500 futures rose by 1.2%, and US 10-year yields surged 17 basis points to a four-month high of 4.44%, as traders speculated that his policies would keep interest rates elevated. Bitcoin also spiked by 6.9%, hitting a record high.

Dollar surge boosts IT stocks

Domestically, Indian benchmark indices were trading in positive territory, with the Nifty 50 and Sensex both up by nearly 1%. IT stocks were leading the rally, with the Nifty IT index jumping 3.10% in intraday trade. All 10 constituents of the index were trading in the green at that point.

A stronger dollar benefits Indian IT companies, as they generate a significant portion of their revenue in US currency while bearing most of their operational costs in Indian rupees. Experts suggest that the expectations of a Republican sweep in the US election are positive for Indian IT players, as Trump's policies are seen to bolster the dollar.

In its latest note, global brokerage firm JM Financial highlighted that Trump's proposal to reduce the corporate tax rate for domestic production from 21% to 15% could boost IT services demand by alleviating budgetary constraints for US firms.

The Tax Foundation, a non-partisan think tank focused on US tax policy, estimates that Trump's tax policies could have a positive long-term impact on the country’s GDP.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.