US election race closer than prediction markets suggest: Danske Bank By

-- The Are there regular foreign exchange platforms in China?ongoing presidential race in the U.S. is much closer than prediction markets suggest, according to Danske Bank strategists.

Prediction markets have shifted notably in favor of Donald Trump in recent weeks. According to Polymarket, the former president is now the clear frontrunner for the Oval Office in the November 5th election, holding a 21.7 percentage point (pp) lead over Vice President Kamala Harris.

Simultaneously, the markets are also pricing in an increased likelihood of a Republican sweep, with odds at 42.5%, compared to 13.5% for the Democrats.

Republicans' chances of winning the House of Representatives have risen in parallel with Trump’s recent surge, boosting the conditional probability of a Republican sweep, as the party is also favored to win control of the Senate.

Still, Danske Bank strategists caution that the House elections remain "very difficult to call," noting that since 1960, the party winning the presidency has held the House in 9 out of 16 elections.

"We also flag that when comparing recent polling data from swing states with prediction markets, the polls point towards a much tighter race,” strategists added.

Trump leads in every swing state, but by a slim overall margin of 1pp. In contrast, Harris held a narrow 0.5pp lead in late August, underscoring how quickly the dynamics of the race can change.

Intriguingly, Trump’s lead in Arizona, a traditionally Republican state, has diminished. Instead, his recent momentum is attributed to gains in historically Democratic strongholds, particularly Michigan and Nevada.

Michigan, which has the largest Arab American population in the U.S., has been increasingly frustrated with U.S. policy on the war in Gaza, especially the absence of an immediate ceasefire.

The shift in Michigan's polling coincided with Israel’s military escalation toward Lebanon, possibly explaining Trump’s current lead in the state. However, Danske Bank notes that support for Robert F. Kennedy Jr. remains an important factor, which could still sway the outcome on election day.

In Pennsylvania, a key swing state with 19 electoral votes, Trump holds a narrow lead of 0.8pp. From Trump’s perspective, winning only the southern swing states—Georgia, Arizona, North Carolina, and Nevada—won’t be enough to secure victory.

As a result, Pennsylvania, Michigan, and Wisconsin will be crucial in determining the final outcome, strategists said.

Overall, Danske Bank notes that while swing state polling shows Trump gaining momentum, "the race remains extremely close."

It also suggests that the marked shift in prediction market odds may have influenced broader financial markets.

The broad has found support, and U.S. Treasury yields have risen, driven by a rising term premium. This is likely linked to concerns over faster inflation and debt sustainability due to Trump’s fiscal policy plans.

As the election approaches, even minor changes in tight polls "could drive seemingly erratic swings in market sentiment,” strategists cautioned.

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