Expectations of Donald Trump's imminent US election victory have driven the dollar higher in early trading, with Treasury yields soaring as the so-called Trump trade returns.

Trump, whose Republican party is also on-track to claim both Congress and the Senate, has already declared victory. 

Polling data overnight and in the early hours in the UK showed Trump leading in several key swing states, with the Republican nominee leading Democrat Kamala Harris by 266 to 194 electoral college votes by 7.30am GMT – just shy of the 270 needed to win.

The Fed is still expected to cut interest rates at its meeting that starts today. The Bank of England is also tipped to cut base rate by 0.25 percentage points to 4.75 per cent tomorrow. 

But markets believe the policies of a second Trump term would be inflationary, thereby potentially greatly reducing the volume of future Federal Reserve interest cuts. 

Interest rate forecasts have been pared back over recent weeks.

This perception saw Treasury yields recommence their ascent, with the 10-year climbing as much as 18 basis points to 4.47 per cent - its highest since July. 

The yield on the 10-year had already soared by more than 40 bps in the month leading up to the US election.

The US dollar also soared, adding 1.3 per cent against the pound to £0.777 and 1.8 per cent against the euro to €0.931.

Trump is seen as good for stock markets dominated by big US tech firms and the FTSE 100 responded to sentiment and the fall in the pound, which flatters UK shares, by jumping 1.13 per cent to 8,365 in early trading.

Francesco Pesole, FX strategist at ING, said: ‘The bear steepening and widespread sell-off across the Treasury yield curve mirrors widespread expectations for an inflationary mix of domestic (fiscal and migration) and external (tariffs) policies from Trump.

‘We are also observing some action in the short-term USD swap rates linked to a hawkish repricing in Fed rate expectations. 

'In line with our expectations and consensus, markets are holding on to expectations for a 25bp [Fed] cut to 4.75 per cent tomorrow, but the OIS curve has recorded some 10bps+ repricing across 2025 tenors.

‘That embeds a policy rate close to 4 per cent in June 2025, almost 100bps higher than mid-September pricing.’

US stock markets had recorded their best day in six weeks on Tuesday, which many market commentators had thought was an indication that investors were pricing a looming Harris victory.

Shares in Trump’s social media firm Trump Media & Social soared more than 15 per cent on Tuesday before plunging to end the day down 1.1 per cent.

Meanwhile, Bitcoin soared to yet another all time high of $75,371.69 - topping the previous record of $73,797.98 in March. Trump and the Republican Party are perceived to be more positive for crypto markets. 

Lindsay James, investment strategist at Quilter Investors, said: ‘While over the long-term US elections have had a minimal impact on stock markets, investors will likely see a Trump presidency as a positive for the share prices of many of America’s companies.

‘With proposals for business tax cuts paired with steep tariffs on imports, US corporate profitability is projected to improve, although tariffs will elicit an international response and far-reaching consequences.

‘Indeed, in our recent survey of some of the world’s largest asset managers, a Trump presidency was seen to be mildly positive for markets, compared to no change for a Kamala Harris administration – although highlighting his volatile nature, the spread of views for Trump was far greater.

‘Volatility is likely to be the defining feature of this presidency.’