U.S. Election: Bellwether County Results to Trigger Initial FX Market Volatility

File image. Source: Gage Skidmore.

Market volatility will increase as the initial vote results from key swing U.S. counties roll in.

Global financial markets await the result of the U.S. presidential election, with the counties in key states being where the initial focus lies. However, a tight race could mean the final verdict will only be clear when Pennyslvania's vote is declared.

"As the results take some time to be counted on a state level, market participants will look at a more granular level. Therefore we highlight Citi Research's work on the best bellwether counties to track," says Rui Ding, Director at Citibank's FX Wire.

Citi identifies the following counties as being potential bellwethers:

Kent County is a good example of a swing county; it used to be mostly Republican, but in recent elections, it has leaned more Democratic.

In 2020, President Biden won Kent County after Donald Trump had won it in 2016 and many voters are still undecided in 2024.

Erie County, Pennsylvania, is meanwhile described as "the battleground within the battleground." Erie and Pennsylvania went twice for Obama, then for Trump in 2016, and then switched to Biden in 2020.

Door County in Wisconsin has picked the presidential winner since 1996.

The vote tally of these counties could, understandably, trigger notable market moves as traders try to get an edge on the final result.

Foreign exchange markets have a relatively simple rule of thumb regarding the vote, which sees the Dollar favoured on signs of a Trump win.

The Dollar's advance would be exacerbated by signs that Republicans are on course to claim control of both the House of Representatives and the Senate. This would turbocharge Trump's big tax-cutting and tariff-imposing agenda.

Losers in this 'Trump trade' include the Chinese Yuan, Mexican Peso, New Zealand and Australian Dollars.

"Our FX trader warns if initial results indicate Harris doing better than expected, there will likely be a panicky unwind of USD longs (tariff trades like USD vs EUR, CNH, MXN, KRW)," says Ding.

Polling and betting market odds show the election is a dead heat, with neither Trump nor Harris considered the favourite, although Harris has seen momentum swing in her favour in the final days of campaigning.

In 2020, just 43k votes in Wisconsin, Georgia and Arizona determined the winner. In 2024, all eyes are on just seven states. The blue wall/frost belt - Pennsylvania, Michigan, and Wisconsin - and the Sun Belt - Arizona, Georgia, North Carolina, and Nevada.

If the closeness in the polls is reflected in the actual vote outcome, then "all roads lead to Pennsylvania," explains Ding.

The state holds 19 electoral college votes, and Trump must ensure a high turnout from the low-engagement working-class vote. Meanwhile, Harris needs to build on the white college-educated suburban vote.

"If the election comes down to Pennsylvania, it is possible the result could be delayed to Wed/Thu. Mail-in ballots cannot be counted until Election Day. In 2020, mail votes initially voted for Biden, but Trump took the lead as a mix of voting materialised. However, by T+3, Biden took the lead as the remaining mail votes were counted. Early voting data so far suggests this could be repeated," says Ding.