Authors: Medha Singh and Wayne Cole
(Reuters) – on Monday the dollar lost its value, because investors were preparing for extensive consequences for the world economy this week, resulting from the result of the US elections and the likely reduction of interest rates by the federal reserve.
Euro increased by 0.7% to $ 1.0906. The dollar dropped by almost 1% to Jen to 151.645. The course dropped to 103.65, the lowest level in two weeks compared to the currency basket.
The profitability of American treasury bonds fell by 8 base points (PB), making up part of Friday’s growth. [US/]
The candidate of the Democrats Kamala Harris and the Republican Donald Trump remain almost equally in the polls, and the winner may not be known for a few days after the vote.
In recent weeks, investors have been more and more in favor of Trump’s victory and expected his policy in the field of immigration, tax reductions and duties to put pressure on inflation, bond yield and dollar. Harris is seen as a candidate to continue.
Strategists say that Monday’s weakening of the dollar was associated with the survey, which showed that Harris has an unexpected three -point advantage in Iowa. A separate New York Times and Siena College survey showed that Harris had a minimal advantage in Nevada, North Carolina and Wisconsin, and Trump just before in Arizona, among the few states on the battlefield, where the elections are the most competitive.
“Surveys suggesting that Harris may have a nose in several pendulum states, they cause some realization of profits in trade with Trump,” said Kenneth Boux, head of the corporate research department, currencies and rates in Societe General (OTC :).
“Markets are very tense – long dollars, short tax bonds – before voting tomorrow, so it is natural that we adapt part of this positioning.”
The Predictit bookmaker service showed that Harris had 53 cents, and Trump 52 cents – that is, the amount that investors are willing to make to have a chance to win $ 1 – which means a return with 45 cents and 59 cents, respectively, just a week ago.
“This is certainly one of the most uncertain choices in the US compared to the last,” said Roberto Malich, a currency strategist at Unicredit, referring to the position on the option market position that showed that investors buy protection against violent fluctuations after Tuesday voting.
“The risk that we won’t have a black-and-white result already on Wednesday increases the uncertainty.”
Weekly options implied volatility for euro/dollar was at its highest since March 2023.
Reflecting the concern of investors associated with trade relations, the implied variability of the Chinese currency, noticeable in the foreground of the market reaction to the US elections, reached a record level, while the variability of the dollar to the Mexican peso was the highest since April 2020, exceeding the previous election of the cycle.
Price for 25bp
This week, the FED political meeting will also take place, during which the American Central Bank is widely expected on Thursday, interest rates by a standard 25 base points, instead of repeating a enormous -scale reduction in interest rates by half a point, contained in its last decision.
According to the CME Fedwatch tool, investors see 98% chance of a reduction by a quarter of points to 4.50% -4.75% and almost 80% probability of similar movement in December.
“We intend to carry out four more discounts in the first half of 2025 to the final level of 3.25–3.5%, but we see greater uncertainty both as to the speed next year and the final purpose,” said economist Goldman Sachs Jan Hatzius.
“Both our baseline and probability-weighted forecasts are currently slightly more dovish than market prices.”
The Bank of England also meets on Thursday and is expected to cut 25 basis points, the Riksbank will cut rates by 50 basis points and Norges Bank will remain unchanged.
The Reserve Bank of Australia meets on Tuesday and is expected to keep interest rates steady again.
The Boe decision is complicated by a rapid discount of bonds following the last week’s Laborbust budget, which also caused a fall in pound.
Early Monday, Great Britain’s bonds stabilized, and the pound of Szterling made up part of the losses and reached USD 1.29820. [GB/]
Greater stimulus is also expected from the National People’s Congress, which meets from Monday to Friday.
