U.S. dollar climbs overnight as speculation grows Trump in election lead

The U.S. dollar strengthened against the Mexican peso and other major global currencies on Tuesday evening as voting began to wind down in the presidential election.

The greenback had gained 2.9% against the Mexican peso at around 10:30 p.m. ET, and was also higher against the Swiss franc, Japanese yen and Chinese yuan. The ICE U.S. Dollar Index rose 1.4%, hitting its highest level since late July.

The euro fell to 1.0746 against the dollar, its lowest level since July 3.

The U.S. currency’s gains extended as speculation grew that former President Donald Trump was leading Vice President Kamala Harris in the U.S. presidential election. To be sure, many states were still too early to call, or too close to call, per NBC News.

Investors are closely looking at the foreign exchange market, as it’s one of the most liquid markets that are open as election results roll in. Currencies are more regularly traded during the overnight hours in the U.S. than domestic stocks and bonds.

“Watching the dollar is going to be critical tonight. That will be the most liquid and the most transparent messaging to what we are getting markets to do, because that’s where people can put money to work fast,” said David Zervos, Jefferies chief market strategist on CNBC’s “Money Movers” on Tuesday.

Traders generally expect that a strong night for Trump and Republicans in Congress could push the greenback higher. Trump’s proposals to hike tariffs against major U.S. trading partners would, in theory, result in a stronger dollar.

“Levies on trade should increase domestic business activity and reduce U.S. imports. We believe these effects should help more domestic-oriented small-cap companies and raise the U.S. dollar’s exchange value,” Paul Christopher, head of global market strategy at the Wells Fargo Investment Institute, said in a note to clients Tuesday.

The dollar has generally strengthened in the runup to Election Day. The Dollar Index rose more than 3% in October, though it has dipped in recent days.

Still, market participants seem to be positioned for a scenario where Trump wins, said Chris Turner, global head of markets at ING.

“The bigger move in FX markets is going to be the dollar’s downside if there’s not a red sweep. And particularly if Kamala wins, I think that would be the biggest dollar down move,” Turner said, referring to Democratic nominee and Vice President Kamala Harris. “I think the jury is out if Trump wins the presidency but it’s a split Congress.”

Elsewhere, the British pound and the Australian dollar were each down more than 1% against the U.S. dollar.