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Weighted down by traders squaring up in pre-event positioning, Wall Street indexes wobbled through the New York session as investors steeled themselves for the high-stakes U.S. Election Day. Solid earnings and rate-cut optimism are holding the market’s floor steady, but seasoned players know the broader macroeconomic landscape dictates election-time market moves. The real driver here? It’s not the candidates themselves but where we stand in the economic and monetary policy cycle that will steer the market’s course as the election hype fades.

Unperturbed by the political theatrics, markets remain locked in on expectations for a quarter-point rate cut on Thursday, followed by an additional 100 basis points of easing over the next 12 months. Traders are sticking to their rate outlook, letting the economic indicators lead the way, even as election fever grips the headlines.

With the coin-flip race between Kamala Harris and Donald Trump looking like it could all come down to Pennsylvania, speculative traders are gearing up for Election Day volatility. Outliers from Iowa and a messy payroll report only add to the confusion, while a slight safe-haven shift pushes U.S. Treasurys higher. The benchmark 10-year Treasury yield dropped to 4.3% on Monday from about 4.36% on Friday, signalling that risk is being dialled back as the election nears.

As we pivot from “FiveThirtyEight to Election Night,” the economic impact of the new president will hinge heavily on the balance of power in Congress. A Harris win with a split government could be the dream bond scenario. At the same time, a full Republican sweep might lift the dollar—although it’s unlikely to match the potential drop if Harris claims victory.

Kicking off the week, the dollar index has shifted gears, with 'Trump trades' losing steam as Bitcoin stumbled, while currencies like China’s yuan, Singapore’s dollar, and Mexico’s peso found new footing.

As traders step back and liquidity evaporates like a desert mirage, the next 24-48 hours promise to be a whirlwind for USD crosses. With tighter liquidity paving the way and a high-stakes, binary election outcome in the wings, traders are strapping on their helmets, bracing for a bumpy ride. Exit polls are just around the corner, and in this environment, the smartest play is to expect the unexpected—because in this game, surprises are the only certainty.

The stakes couldn’t be higher, with the election set to ripple across the U.S. economy, global trade, and geopolitics. Markets worldwide are bracing for at least 48 hours of white-knuckle suspense. And with swing states hanging in the balance, who can say when a final result might drop?

Amid all this, Thursday’s Fed decision rolls in like a side act in the main event. With the election outcome possibly still up in the air, the Fed might barely make a splash as investors stay glued to the unfolding political drama. Gridlock looks like the most probable outcome, adding another layer of intrigue to an already high-stakes week.

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