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Donald Trump's polling explains many of the moves we're seeing in financial markets

Picture: Getty Images

Nothing quite shows the grip US politics has on financial markets right now than the two charts below.

Courtesy of Hans Redeker and Gek Teng Khoo, FX strategists at Morgan Stanley, it shows the relationship to Donald Trump’s net approval rating among American voters, overlaid with movements in the US dollar index and US inflation expectations over the past year.

Here they are:

Source: Morgan Stanley

Pretty amazing, right?

Where Trump’s opinion rating moves, the buck and inflation expectations tend to follow.

The pair think there’s a simple explanation to explain the relationship.

“Recent swings in USD find some explanation in changes in President Trump’s domestic support,” they wrote in a note released earlier this week.

“When his popularity was on the rise, USD moved higher.

“Conversely, when his approval rating declined, it took USD with it.”

Redeker and Khoo suggest that investors are taking the view that declining support for Trump may reduce the US reform momentum and with that the US growth outlook.

Based on the evidence in the charts above, it certainly appears like that’s the case.

Perhaps it’s time for traders to pay closer attention to opinion polls in the period ahead in order to determine where the US dollar, along with bonds and rate-sensitive stocks, are likely to head next.

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