The dollar staged its biggest rally since March 2020 as the early results of the U.S. presidential election indicated that Donald Trump had an edge in some key states, triggering a sharp rise in Treasury yields on speculation his policies would keep U.S. interest rates elevated.

The rise in bond yields promised to pull cash into the U.S. an investors seize on the higher payouts. The dollar surged against all of its major counterparts in Asian trading even though the race remained too close to call and crucial states had yet to report vote tallies.

The currency’s gain came on the back of a building bond-market selloff as traders re-calibrated the odds of what has been a neck-and-neck race between Trump and Vice President Kamala Harris. Trump has promised to cut taxes and slap large tariffs on imports, which would fan inflation pressures and likely slow the pace of the Federal Reserve’s interest-rate cuts.

“Trump’s plan for tariffs and taxes should result in higher inflation and higher deficits and that should mean higher long end rates,” said Priya Misra, portfolio manager at JPMorgan Investment Management.

The Bloomberg Dollar Spot Index rallied as much as 1.6% as benchmark 10-year Treasury yields jumped 18 basis points to 4.46%, the highest since April. The surge in the greenback sent currency peers around the world sliding, with the euro weaker by 1.8%. The yen, Australian dollar and Swiss franc also fell more than 1%, while losses in the Mexican peso hit the 3% mark.

The close contest has elevated volatility in markets, where hedge funds and other traders plowed into so-called Trump trades — like betting against U.S. bonds or the Mexican peso — for much of October before dialing the back this week as Harris posted some strong showings in opinion polls.

As of Oct. 29, hedge funds and other speculative traders positioned for a further rally in the greenback, also spurred by a demand for haven assets of the election outcome. These funds, asset managers and other speculators held some $17.8 billion in bullish dollar positions, according to Commodity Futures Trading Commission data compiled by Bloomberg.

Still, pivotal battleground states including Michigan, Wisconsin and Pennsylvania remain tightly contested and have yet to be called. That leaves open the possibility of a sharp reversal in currency markets, as have been seen in prior cycles.

“The moves makes sense if it is a Trump victory,” said Tom Fitzpatrick, managing director of global market insights at R.J. O’Brien. “But right now the market is a bit ahead of itself.”

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