Investing.com – The U.S. dollar rose modestly early in the European session on Tuesday, moving away from a one-month low as investors began to see growing prospects for former President Donald Trump returning to the White House and the likelihood that the Federal Reserve will begin cutting interest rates in September.
At 5:20 a.m. ET (09:20 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was up 0.1% at 103.952, after falling to its lowest level since mid-July earlier in the week.
The dollar is counting on Trump’s strength
The dollar rallied slightly after Donald Trump enthusiastically welcomed the first day of the Republican National Convention in Milwaukee, just days after he survived an assassination attempt in Pennsylvania on Saturday.
The four-day convention will conclude with Trump’s prime-time speech on Thursday in which he will formally accept the party’s nomination for a rematch with President Joe Biden in the 2020 race.
The attack has boosted expectations that Trump will win the November election, which could boost the dollar given that Trump has signaled his intention to pursue more protectionist trade policies.
“The stronger dollar appears to be fueled by rising bets on a Trump presidency following last weekend’s events,” ING analysts said in a note. “If markets continue to increase their bets on Trump, there is a greater likelihood of broad outright positioning in the months to November.”
Still, the dollar remains just above its lowest level in a month after comments from the Federal Reserve chairman suggested the likelihood of a rate cut in September.
Powell said on Monday that three readings of U.S. inflation in the second quarter provided “some added confidence” that the pace of price growth was sustainably returning to the Federal Reserve’s target.
The comments, likely the last from Powell before his news conference following the Federal Reserve’s meeting scheduled for tardy July, changed expectations for interest rate cuts.
The ECB meeting is swift approaching
rose 0.1% to 1.0899, with the euro just below its highest level in four months ahead of Thursday’s Monetary Policy Council meeting.
The ECB is widely expected to keep interest rates on hold after cutting them in June. As a result, the focus will be on the president’s comments at an accompanying press conference.
The rate fell slightly below 1.2963, having reached its highest level in more than two years last week.
Political certainty following the landslide victory of the centre-left Labour government in the UK election helped sterling gain support, especially against the backdrop of turmoil in France and the US.
Yen is making up for recent gains
In Asia, it rose 0.3% to 158.47, with the yen weakening, easing a recent rebound against the dollar.
The recent strengthening of the yen has increased speculation that the Japanese government will intervene in currency markets to support the yen.
Japanese officials repeated their warnings about intervention on Tuesday, saying they were ready to take all possible measures to stem excessive volatility in currency markets.
The yuan rose 0.1% to 7.2661, with the yuan nearing an eight-month low, weighed down by data showing China’s economy grew less than expected in the second quarter.
