Investing.com – The U.S. dollar fell on Monday amid political uncertainty ahead of Tuesday’s presidential election and with the Federal Reserve expected to cut interest rates later in the week.
At 04:10 ET (09:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, fell 0.5% to 103.695, following powerful gains in October.
The dollar is losing before the US elections
Earlier this week, attention turns to Tuesday’s all-important U.S. presidential election, with the race between Republican Party candidate Donald Trump and Democratic rival Kamala Harris set to be an extremely close one.
That said, Harris got a particular boost when a respected poll in the traditionally conservative state of Iowa showed her lead over Trump by three percentage points, thanks in immense part to support among women.
“Markets appear to be limiting some of Trump’s trades,” ING analysts said in a note, “and we suspect there may be some unusual volatility in USD cross-charts over the next two days due to tighter volatility conditions ahead of the closely contested and highly binary U.S. currency selection “
Analysts believe Trump’s policies on immigration, tax cuts and tariffs will put upward pressure on inflation, bond yields and the dollar.
Moreover, markets were also positioning for a 25 basis point cut at the end of their latest two-day policy meeting on Thursday, following the central bank’s decision to implement a massive 50 basis point cut in September.
Friday’s data showed a dramatic slowdown in the number of jobs created in October, but the release was impacted by hurricanes and labor disputes.
“If not for the closeness of the vote, we would argue that the Fed’s interest rate cut would be negative for the dollar, but the currency implications of this Fed decision will only be assessed once electoral volatility subsides,” ING added.
The euro is gaining after improved data from the euro zone
In Europe, quotations were 0.5% higher at 1.0892, supported by the weakening dollar and relatively positive recent data.
In the final version, the rate rose to 46.0 in October, an improvement from 45.0 in the previous month, according to data released earlier on Monday. While this shows that the sector was still in sinking territory, there appears to be some brightness on the horizon.
“Markets trimmed some of the European Central Bank’s dovish assumptions following the latest euro zone growth and inflation data, but likely remain open to pricing in the chance of a 50 basis point cut in December if Trump wins this week,” ING added. “The rationale is that the ECB will be more willing to ease early, given the risks of protectionism under Trump.”
rose 0.3% to 1.2963, rebounding from last week’s losses in the wake of the recent Labor government’s budget.
It also meets on Thursday and is expected to cut by 25 basis points, although that decision is complicated by the sell-off in Treasury bonds after last week’s budget.
“Markets will likely be more interested in hearing what the MPC has to say about last week’s budget,” ING said, given that “the Office for Budget Responsibility sees the fiscal measures announced to be both pro-growth and inflation-friendly.”
Yen rebounds from three-month lows
fell 0.6% to 152.11, moving away from recent three-month highs on a weakening dollar. The yen also benefited from the slightly hawkish statement from last week.
fell 0.3% to 7.1009, focusing directly on the NPC Standing Committee meeting that begins on Monday.
The NPC is widely expected to unveil plans for more fiscal spending, with recent reports suggesting the body could approve $1.4 trillion in additional debt in the coming years.
