A stockmarket decline seems likely if Trump wins. For the greenback, the outcome seems less certain. The dollar may go up against EM currencies but down against the Swiss franc and yen

YESTERDAY’s decline in the American stockmarket, on news of a narrowing in the poll gap between Hillary Clinton and Donald Trump (under two points according to Real Clear Politics), confirms the argument made in last week’s column. A combination of Mr Trump’s adverse policy proposals on trade, foreign policy and the Federal Reserve, and uncertainty about how much of this agenda would get through Congress, would hit equities hard were he to be elected. But what about the dollar? The picture is far from clear. Over the last 24 hours, America’s currency has lost ground against the Swiss franc, euro, yen and sterling but gained against emerging market currencies like the Mexican peso and Brazilian real. That makes some sense. A Trump victory would make international investors less confident about the direction of American economic policy. This in turn might lead to the Fed being less willing to tighten rates in December, another reason for the dollar to weaken.

On the other hand, Mr Trump’s trade policies—tearing up NAFTA and threatening tariffs—would, if implemented have an adverse impact on many emerging markets. That is why the Mexican peso has been the most sensitive currency to his opinion poll rating. His other hints about downplaying America’s military alliances in Asia, and its role in NATO, would also hit EM currencies. Furthermore, one Trump policy—encouraging, or forcing, foreign multinationals to repatriate their overseas earnings—might eventually lead to dollar strength.

It is the “exorbitant privilege” of America that it is the global reserve currency and can benefit from a flight to safety, even when (as during the 2008 subprime crisis), it is the place that has caused the shock. Americans who had invested overseas might bring their money home. So the trade-weighted dollar might not be too badly hit by a Trump win (it is higher than it was six months ago, for example).

But if the dollar falls back against developed world currencies, those nations won’t be happy as that will, in effect, be a tightening of their own monetary policy. That might cause the ECB and Bank of Japan to indulge in a further round of monetary easing. The prospect of that merry-go-round continuing may explain why gold is up more than 20% this year.