Stefano Rebaudo
(Reuters) – The dollar fell slightly against a basket of currencies on Monday while losing ground against the yen, as investors focused on U.S. President Joe Biden’s decision to end his re-election campaign and further moves by the Federal Reserve and the Bank of Japan.
Biden announced Sunday that he was dropping out of the race and endorsed Vice President Kamala Harris to replace him in the Democratic primary in November.
Harris quickly gained support from many in the party, but several prominent names remained quiet, including former House Speaker Nancy Pelosi.
Former President Trump, the Republican candidate, is leading the betting markets.
The British pound, a measure of its value against a basket of foreign currencies, fell 0.1% to 104.30.
“There is a growing belief that the dollar will be stronger if Trump wins the election on tax cuts and tariffs, but the issue is more complicated because Trump does not want a strong dollar,” said Athanasios Vamvakidis, global head of foreign exchange research at BofA.
“What’s happened over the past few weeks has taught us that we shouldn’t expect the dollar to react to election events unless the candidates specifically address the U.S. currency,” he added. “I expect the market to continue to trade on data and central banks.”
Some analysts said it was too early to judge the impact of Biden’s move, as markets await the results of election polls in the next few days and weeks. Analysts also said the dollar would remain forceful regardless of who wins the presidential election.
“For this (verbal speeches aimed at weakening the dollar) to be effective, it has to be accompanied by very large financial market intervention, capital controls that would be extremely costly, or an erosion of the independence of the Federal Reserve,” said George Saravelos, global head of foreign exchange at Deutsche Bank.
“We conclude that tariffs and the associated stronger implications for the US dollar will be a much more likely market driver compared to the alternative of a major change in dollar policy,” he added.
Some analysts say the Japanese currency could be at a turning point after falling since early 2024, as the Federal Reserve is close to cutting interest rates and the BOJ is widely expected to tighten monetary policy soon.
The Federal Reserve’s Open Market Operations Committee will meet on July 30, the day before the Bank of Japan meeting.
Money markets are fully factoring in the Federal Reserve’s 25 basis point interest rate cut by September.
Lee Hardman, senior currency analyst at MUFG, said the yen was supported by “more convincing evidence of a slowdown in US inflation.”
The dollar weakened against the Japanese currency by 0.6% to 156.58.
“From now on, I expect the dollar to struggle to rise above 160 points against the yen, but I don’t see a reversal in the current trend,” BofA Vamvakidis argued.
The euro rose 0.05% to $1.088.
Analysts noted that at last week’s monetary policy meeting, the ECB did not present any coordinated opposition to the excessive price tag for a September interest rate cut, which remains a forceful base case scenario.
The dollar rose 0.1% to 7.2943 yuan in offshore trading after the People’s Bank of China unexpectedly cut its seven-day repo rate to 1.7% from 1.8%, saying the move would improve open market operations and support the real economy. Minutes later, it made surprise cuts to key one- and five-year mortgage rates.
The Australian dollar weakened 0.30% to $0.6659, giving up earlier gains of a similar amount following reports of Biden’s withdrawal.
