Recent polls released over the weekend indicate that current US Vice President Harris has gained in popularity,
which seems to be the reason for the USD’s recent decline. In the two to three weeks before that, Trump was
recovering from a lagging position to one where he was leading, and investors positioned for the possibility that he
might gain a second term in office. The market interpretation was that Trump would be better for the USD. Given
the USD’s movement over the past month, one could argue that a Trump presidency is already priced in. What is
less accounted for is a potential Harris victory, which might explain the recent changes in USD. The Fed’s decision
on Thursday adds interest to this week’s events. Investors expect the Fed to reduce rates by 25bp, although the
futures market shows this has already been priced in. Therefore, the accompanying statement is likely to be more
interesting than the decision itself, as investors try to gauge how much further the Fed might cut. Currently, the Fed
funds futures only have another five 25bp cuts priced between now and the end Dec 2025, a moderation of
approximately 50bp from original expectations when the Fed first announced its 50bp rate cut and front-loaded its
policy position.