Investing.com – The U.S. dollar weakened on Monday after U.S. President Joe Biden decided to end his re-election campaign. The euro benefited despite a feeble tone following last week’s European Central Bank meeting.

The dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.2% at 103.942 at 06:00 ET (10:00 GMT), marking its first weekly gain in three weeks.

Dollar retreats amid political uncertainty

The dollar fell following the weekend news that President Biden would not seek re-election, endorsing Vice President Kamala Harris as his potential successor.

“Investors will now turn their attention to how Kamala Harris compares to Donald Trump in public opinion polls – assuming she is elected presidential nominee at the Democratic National Convention on August 19-22,” ING analysts wrote in a note.

The dollar rose as the likelihood of a Trump victory rose following Biden’s disastrous debate performance last month and questions about his age and health.

The week’s key economic data is due on Friday, with the June consumer spending index expected to test market expectations that the Federal Reserve will almost certainly cut interest rates in September.

Economists are forecasting inflation to rise 0.1% for the second straight month, which would bring three-month annualized core inflation to its lowest level this year and below the Federal Reserve’s 2% target.

Euro bounces back following ECB decision

rose 0.2% to 1.0893, rebounding from weakness following the holding of interest rates unchanged at last week’s meeting.

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.

“This year’s eurozone business sentiment readings, due on Wednesday and Thursday, will help shape the narrative that policy is too restrictive and could cause the euro to weaken slightly,” ING said.

Markets are pricing in the possibility of almost two ECB interest rate cuts by the end of the year.

rose 0.1% to 1.2931, after crossing 1.30 for the first time in a year last week following Labour’s landslide election victory, ending 14 years of sometimes disordered Conservative rule.

“Some will no doubt argue that this is a removal of the Brexit risk premium in sterling, helped by new Prime Minister Keir Starmer’s desire to engage more closely with Europe,” ING said.

“While we share this view to some extent, we attribute the strength in the pound more to the firmness of UK inflation and limited pricing in of BoE rate cuts this year, as well as the fall in the dollar in July on the back of weaker US price data.”

Yuan falls after PBOC interest rate cut

In Asia, the index rose 0.1% to 7.2727, approaching levels last seen in November.

The yuan’s weakening came after the People’s Bank of China unexpectedly lowered its reference value to further ease monetary policy and support the economy.

The rate cut comes as China grapples with a slowing economic recovery, which has added pressure on the yuan.

The yuan’s recent weakening comes amid concerns about Trump’s presidency, which has long been negative towards Beijing.

fell 0.5% to 156.63, with the yen continuing to swing wildly on speculation that the Japanese government was intervening in currency markets.