Gertrude Chavez-Dreyfuss and Alun John

NEW YORK/LONDON (Reuters) – The U.S. dollar strengthened on Wednesday to a modern 10-week high as investors priced in a significant interest rate cut by the Federal Reserve at its next policy meeting and factored in a potential election victory for former President Donald Trump.

Meanwhile, sterling fell to a two-month low after softer-than-expected UK inflation data allowed the Bank of England to cut stronger interest rates, while the euro was at a 10-week low ahead of the European Central Bank meeting.

But with the U.S. presidential election just weeks away, investor attention has shifted to the competition along with the Fed’s interest rate path.

Trump’s plan for tax cuts, looser financial regulations and higher tariffs is seen as positive for the dollar. For example, higher tariffs would have negative effects on Asian currencies, in particular, and would also mean increased volatility in financial markets, which would ultimately be beneficial for the dollar.

Vasily Serebryakov, currency strategist at UBS in New York, said a combination of Fed policy expectations and the U.S. election outlook kept the dollar up.

“We have priced in a 50 basis point (bp) cut in interest rates. “Fedspeak has also consistently maintained a very gradual pace of rate cuts.” Serebriakov said.

“The closeness of the US elections makes the market more reluctant to sell the dollar, especially as polls have moved slightly towards former President Trump. “The market is also taking into account some of the potential tariff risks.”

In behind schedule morning trading, the dollar rose 0.2% to 103.44, after hitting another 10-week high of 103.47.

The euro, the euro’s largest component, also fell 0.2% to $1.0876, after earlier falling to an 11-week low of $1.0871.

Investors will be closely watching Thursday’s ECB meeting, but if policymakers go through with the currently priced 25bp interest rate cut and President Christine Lagarde does not provide much guidance on the future interest rate prospects, the market’s impact may be confined.

STERILE PRESSURE

Meanwhile, the pound was one of the biggest movers among major currencies, falling 0.5% to $1.3008. It fell below $1.30 for the first time since Aug. 20, after data showed the rate of annual consumer price inflation fell to 1.7% in September from 2.2% in August.

It was the lowest reading since April 2021, below the 1.9% forecast in a Reuters poll of economists. He strengthened expectations for a BoE interest rate cut next month and increased the likelihood of another cut in December.

The euro was last 0.4% higher against the pound, at 83.63 pence.

According to LSEG estimates, investors across the Atlantic are pricing in a 97% chance of a 25 basis point rate cut when the Fed makes its next monetary policy decision on November 7, with a 3% chance of a rate hold. A month ago, investors saw a 50-50 chance of a massive 50 basis point cut.

Market valuations remain strongly in favor of around 50 basis points of easing this year, but central bankers’ comments turned hawkish overnight. The Atlanta Fed’s Raphael Bostic said it had committed to just one 25-basis-point rate cut this year, while the San Francisco Fed’s Mary Daly said “one or two” cuts in 2024 would be “reasonable.”

The dollar gained 0.3% against the yen to 149.605 yen, not far from Monday’s high of 149.98 yen, the highest since August 1.

BOJ board member Seiji Adachi said on Wednesday that the central bank must raise interest rates at a “very moderate” pace and avoid premature increases, given uncertainty over the outlook for the global economy and domestic wage developments.

In other currencies, the Australian and New Zealand dollars fell as skepticism grew over stimulus from major trading partner China.

The stock fell to $0.6663, its lowest level since September 12, and last traded at $0.6664, down 0.6%. The New Zealand unit fell to $0.6041, last seen on August 19, and was last down 0.3% at $0.6062.

On Saturday, China’s finance ministry said it would escalate debt, without saying when or by how much. China will hold a press conference on Thursday to discuss promoting the “stable and healthy” development of its real estate sector.

Currency

offer

prices per hour

16

October

03:01

afternoon GMT

Description RIC Last US Pct YTD Pct High Low

to Close Change offer Offer

Previous

Session

Dollar 103.4 103.26 0.15% 2.00% 103.47 103.

index 17

Euro/Dollar 1.0878 1.0893 -0.13% -1.45% 1.0902 $1.0

ar 872

Dollar/Ye 149.6 149.23 0.27% 6.09% 149.66 148.

No. 88

Euro/Yen 1.0878 162.48 0.17% 4.57% 162.83 162.

13

Dollar/Sw 0.8642 0.8622 0.24% 2.68% 0.8657 0.86

it’s 15

Sterling sterling/ 1.3007 1.3074 -0.51% 2.22% 1.3075 $1.2

Dollar 984

Dollar/Katwa 1.3776 1.3775 0.02% 3.93% 1.3793 1.37

nadian 68

Australian/Up to 0.6667 0.6703 -0.53% -2.2% 0.6705 USD 0.6

663

Euro/Swiss 0.94 0.9389 0.12% 1.23% 0.9412 0.93

p 79

Euro/Christmas 0.8362 0.8331 0.37% -3.53% 0.838 0.83

ling 27

New Zealand 0.6062 0.6083 -0.31% -4.04% $0.6086 0.60

Dollar/Up to 41

ll

Dollar/No 10.9123​ 10.7989 1.05% 7.67% 10.9127 10.8

road 073

Euro/Norway 11.866 11.7821 0.71% 5.72% 11.874 11.7

it’s 724

Dollar/Sw 10.4785 10.4016 0.74% 4.08% 10.4886 10.4

Eden 032

Euro/Sweden 11.3987 11.3441 0.48% 2.46% 11.4045 11.3

in 324