Investing.com – The US dollar fell slightly on Tuesday, but remained near recent highs amid uncertainty over the pace of rate cuts as the US presidential election approaches.
At 04:40 ET (08:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 103.677, after hitting its highest level since early August overnight.
The dollar was helped by higher yields
The dollar fell slightly on Tuesday but saw demand after 10-year US Treasury yields rose to a 12-week high.
Four Federal Reserve policymakers on Monday backed further interest rate cuts following the central bank’s decision to cut borrowing costs by as much as 50 basis points in September.
However, these officials’ comments seemed to indicate an ongoing disagreement over the pace of filming.
Three of them said a “modest” or “gradual” rate cut could be warranted because of the uncertain outlook despite the continued resilience of the U.S. economy. Still, San Francisco Fed President Mary Daly suggested that interest rates remain “very tight,” adding that a strong economy should not prevent further cuts.
The dollar was also supported by safe-haven demand as traders turned risk averse with about two weeks to go until the 2024 presidential election.
“Our perception is that the magnitude of bond and currency moves are now being exacerbated by some deleveraging ahead of the US elections,” ING analysts said in a note. “The path should be a stronger dollar if currency liquidity conditions indeed deteriorate through November 5.”
The euro is gaining faster than the ECB speakers
In Europe, yields rose 0.2% to 1.0833, ahead of a number of speeches by ECB officials in the wake of the European Central Bank’s latest rate cut.
“It is very common for ECB members to refine the policy message in the period following an interest rate decision,” ING said. “If we see signs today of faltering resistance to easing by archhawks like Knot and Holzmann, we can of course expect the euro to feel some additional pressure. Yesterday, hawkish member Kazimir said the December decision is ‘wide open,’ a pretty mild shift from his pre-October comments.”
rose 0.2% to 1.3003 after data showed UK government borrowing rose by £2.1 billion from September last year to £16.6 billion, the highest figure for September since the start of the registration in 1993.
The country will cut interest rates in the coming months in a bid to stimulate the UK economy, but this data release exposes the dire state of the UK’s finances ahead of next week’s budget.
Weakness of the yen due to political change
rose 0.1% to 150.91 and traded just below the highest level since late July.
The yen’s weakness came as a change in Japanese government leadership raised doubts about whether the BOJ could raise rates further. The new Prime Minister Shigeru Ishiba explicitly stated that the Japanese economy cannot cope with further interest rate increases.
rose 0.1% to 7.1214, near a two-month high, after the PBOC cut its key lending rate on Monday.
