Author: Vidya Ranganathan
SINGAPORE (Reuters) – Cryptocurrency bitcoin hit a three-month high in early trading on Monday and the dollar looked set to continue its gains in markets counting down to the U.S. presidential election in two weeks.
Election polls that show former President Donald Trump’s chances of winning the Nov. 5 election are rising are strengthening the dollar because it is believed his proposed tariff and tax policies are likely to keep U.S. interest rates high and weaken the currencies of trading partners.
Currency moves in major markets last week were driven by dovish interest rate cuts from the European Central Bank and powerful U.S. data that raised expectations about how quickly U.S. interest rates could fall, especially if Trump wins the presidency.
The yen fell almost 0.2% to 149.26 per dollar, but remained near 150 per dollar after briefly breaching that level last week for the first time since early August.
The index, which measures the dollar against its main rivals, was 103.49. It fell 0.3% on Friday as a general augment in risk appetite in markets after China announced more details on its sweeping stimulus package, but was up 0.55% on the week. The euro held steady at $1.0862 and the pound sterling also held steady at $1.3041.
Trump’s prospects have improved as his administration is seen as taking a softer stance on cryptocurrency regulation. The stock was last up 0.2% at $68,869, down from a high of $69,487 that trimmed its gain since Oct. 10 to 18%.
With no major economic events scheduled this week, market attention will focus on corporate earnings and U.S. election risks, as well as a possible augment in the cost of hedging the dollar and other portfolio risks, said Chris Weston, head of research at Australian online broker Pepperstone. note.
“With just 15 days left until the US elections, investors must decide whether now is the right time to start making election trades with greater confidence,” Weston said.
The clearest way to express Trump’s tariff risk was to compare long dollar positions against the euro, Swiss franc and Mexican peso, he said.
Brad Bechtel, global head of FX at Jefferies, also noted that rising real interest rates are helping the dollar, especially against these three currencies.
“We expect this trend to continue into the election, and if Trump wins, likely well after the election,” Bechtel wrote.
Last week, the yen fell by 0.3%, the euro by 0.6% and the pound sterling remained unchanged. The Mexican peso fell 3%.
The euro has fallen more than 3% in three weeks and is above its 200-day moving average and near a 2.5-month low.
Analysts say rising real interest rates in the US are pushing the dollar higher. More significant, however, is the fact that interest rates in other countries are falling rapidly, giving the dollar a yield advantage.
The closely watched gap between U.S. and German yields has widened to about 189 basis points (bps) as U.S. yields have risen in recent weeks and German yields have fallen.
UK yields have also risen against the pound this month on weaker inflation readings and expectations Finance Minister Rachel Reeves will announce a bond-friendly budget on October 30. The spread between US bond yields and Treasury yields has fallen from 24 points in favor of sterling to 3 points negatively.
General elections will be held in Japan on Sunday, October 27. While polls differ on how many seats the ruling Liberal Democratic Party (LDP) will win, markets are confident that the LDP along with junior coalition partner Komeito will win.
