Investing.com – The US dollar retreated on Monday due to political uncertainty ahead of Tuesday’s presidential election and as the Federal Reserve is 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 after strong gains in October.
Dollar slides ahead in the run-up to the US elections
The focus at the start of this week is on Tuesday’s all-important US presidential election, with the race between Republican Party candidate Donald Trump and Democratic rival Kamala Harris extremely close.
That said, Harris got a particular boost when a respected survey in the traditionally conservative-leaning state of Iowa showed her ahead of Trump by three percentage points, thanks largely to support among women.
“Markets appear to be pulling back on some Trump trades,” ING analysts said in a note, “and we suspect some abnormal swings in the USD crosses could occur over the next two days due to tighter volatility in the leading up to a closely contested and highly binary American economy. election.”
Analysts believe that Trump’s policies on immigration, tax cuts and tariffs would put upward pressure on inflation, bond yields and the dollar.
Moreover, markets also positioned themselves for a 25 basis point cut on Thursday, following the central bank’s decision to implement a major 50 basis point cut in September.
Friday’s figures showed a dramatic slowdown in jobs created in October, but the numbers were affected by hurricanes and labor disputes.
“If the election had not been so close, we would have argued that a Fed cut would have been net negative for the dollar, but the implications of this Fed decision for the currency will only be assessed once election volatility has subsided.” decreased. ING added.
Euro wins thanks to improving figures from the eurozone
In Europe, it traded 0.5% higher at 1.0892, with the pair helped by dollar weakness and relatively positive recent data.
The final release saw a rise to 46.0 in October, an improvement from 45.0 the month before, data showed earlier on Monday. While this shows that the sector was still in contraction territory, there appears to be some brightness on the horizon.
“Markets have scaled back some of the European Central Bank’s dovish bets following the latest eurozone growth and inflation data, but likely remain open to pricing back the chance of a 50 bp rate cut in December if Trump were to act this week win,” ING added. “The rationale behind this is that the ECB will be more inclined to ease given the risk of protectionism under Trump.”
rose 0.3% to 1.2963, following last week’s losses in the wake of the new Labor government’s budget.
The bond also meets on Thursday and is expected to fall 25 basis points, although this decision was complicated by a sell-off in government bonds after last week’s budget.
“Markets are likely to be more interested in what the MPC has to say about last week’s budget,” ING said, as the “Office for Budget Responsibility believes that the announced fiscal measures are both pro-growth and inflationary.”
The yen is recovering from a three-month low
fell 0.6% to 152.11, retreating from recent three-month highs due to dollar weakness. The yen also benefited from a somewhat hawkish message last week.
fell 0.3% to 7.1009, with the focus shifting entirely to an NPC Standing Committee meeting starting Monday.
The NPC is widely expected to outline plans for more budget spending, with recent reports suggesting the body could approve $1.4 trillion in additional debt in the coming years.
