Dollar edges higher as debate lifts bets on Trump election win

The dollar inched higher in Asian trading as markets assessed former president Donald Trump was the victor in the first US presidential debate.

Bloomberg's gauge of the US currency climbed as much as 0.2% on Friday before the move pared, with the index on track for a sixth straight weekly gain. President Joe Biden stumbled through early exchanges in the debate, a performance that may intensify worries about his ability to defeat Trump in the November election.

Trump reiterated a pledge to impose 10% duties on imports should he win in November, a move that could put upward pressure on inflation, potentially delaying interest-rate cuts that could weigh on the greenback.

"Markets likely extrapolated today's debate outcome to the actual election outcome in November," said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. "Trump's policies are likely to add to inflationary pressures and escalate trade tensions, thereby supporting US interest rates and the safe haven US dollar."

Asian currencies were mostly steady while the Mexican peso dropped almost 1% before paring its loss to 0.2%. Treasury yields ticked higher while US equity futures saw a modest gain ahead of the Federal Reserve's preferred measure of inflation later Friday.

While the debate was a slow start for Biden, it was a strong finish, said Vice President Kamala Harris. But PredictIt's live betting odds moved in Trump's favor — he's now seen as having a 58% chance to win the November vote, from 53% or so just before the debate started.

While the dollar could weaken should US consumer spending data due Friday show some easing, it's likely to remain supported into next week as investors brace for election risks in France and the UK, said Mahjabeen Zaman, head of FX research at Australia & New Zealand Banking Group in Sydney.

Sentiment in Asian equities was largely upbeat, with most regional stock markets advancing during the debate. Chinese benchmarks recouped early losses and edged away from technical correction territory, as the lack of hawkish comments on China was seen as a positive surprise by traders. The Hang Seng China Enterprises Index was up as much as 0.8%.

It's a "positive surprise for this part of the world, but only moderately so," said Redmond Wong, market strategist at Saxo Capital Markets. The political consensus on dealing with China doesn't only depend on the presidential candidates, but also Congress, he said, adding there could be some escalation of tensions in the coming months.

The lack of hawkish China comments was "probably a surprise, but anti-China is an united, bipartisan stance, so probably there's not that much to attack on each other," said Xin-Yao Ng, director of investment at abrdn.