Investing.com– Most Asian currencies weakened on Wednesday as uncertainty over U.S. interest rates and the upcoming presidential elections kept traders risk-averse, while the dollar remained at a near three-month high.

Regional currencies were nursing losses over the past two weeks, as signs of resilience in the U.S. economy furthered bets that the Federal Reserve will cut interest rates at a slower pace. 

The Japanese yen was among the worst hit by this notion, with the currency hitting a near three-month low this week. Anticipation of a Japanese general election and a Bank of Japan meeting also weighed on the yen. 

Focus was also on more signals on stimulus from China, with the yuan remaining at two-month lows. 

Dollar at near 3-mth high as yields rise 

The and both rose about 0.1% in Asian trade, extending recent gains as traders bet on a slower pace of interest rate cuts by the Fed.
Traders were seen pricing in a 85.9% chance for a 25 basis point cut in November, and a 14.1% chance rates will remain unchanged, showed.

This notion was furthered by recent data showing the U.S. economy remained resilient, underpinning expectations for U.S. inflation. Treasury yields surged on expectations of relatively higher rates, with the hitting a three-month high this week.

The dollar was also buoyed by positioning ahead of the 2024 presidential election, which is about two weeks away. Republican nominee Donald Trump was seen gaining an edge over Vice President Kamala Harris, recent polls and prediction markets showed, although they are still set for a tight race. 

Yen weakness persists with USDJPY near 152 

The yen continued to rapidly unwind gains made over the past two months, with the pair rising 0.5% on Wednesday and coming in sight of 152 yen- its highest level since late-July. 

The currency was pressured by growing doubts over the BOJ’s ability to hike interest rates further, especially in the face of a potential leadership change in the Japanese government. Japanese general elections are set to take place this Sunday, with the ruling Liberal Democratic Party facing the possibility of needing a coalition to stay in power. 

The BOJ is also set to meet next week, but is unlikely to hike rates. Before that, is due this Friday. 

Broader Asian currencies were mostly weaker. The Chinese yuan’s pair rose 0.1%, with focus turning to an upcoming meeting of China’s National People’s Congress for more cues on fiscal spending.

The Singapore dollar’s pair rose 0.1%, while the Australian dollar’s pair was unchanged. 

The South Korean won’s pair rose 0.3%, while the Indian rupee’s pair hovered close to record highs. 

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By Alun John and Brigid Riley

LONDON/TOKYO (Reuters) -The dollar climbed above 152 yen for the first time since late July on Wednesday and pushed the euro to an over three-month low, supported by expectations the Fed won’t rush to cut rates and investors bracing for a potential Trump election victory.

The U.S. currency was last up 1.1% on the yen at 152.82, its highest since July 31, the day the Bank of Japan raised interest rates to their highest in 2007, and, incidentally, gave global markets a sharp jolt.

The move in dollar/yen in recent weeks has been largely led by the dollar side of the pair, but on Wednesday those moves were spilling over into other pairs, with the euro up 0.95 % on the yen at 164.7, also its highest since July 31 and the pound up 1.06% at 198.19 yen.

“The yen, so far this year, has been the most sensitive currency to moves in U.S. yields so that’s driving dollar/yen higher, and then there’s the change in the government, and expectations that the Bank of Japan will remain cautious and that they may not even hike in December,” said Roberto Cobo,

head of G10 FX strategy at BBVA (BME:).

Japan is set to hold a general election on Oct. 27. Recent opinion polls indicated that the ruling Liberal Democratic Party could lose its majority with coalition partner Komeito.

The risk of a minority coalition government has raised the prospect of political instability complicating the Bank of Japan’s effort to reduce dependence on monetary stimulus.

“But the main driver for the Japanese yen remains the U.S. yield curve,” said Cobo, noting longer dated U.S. government bond yields had risen as markets reduced expectations for substantial rate cuts from the Federal Reserve this year.

The yield on the benchmark 10-year note reached 4.24% on Wednesday its highest since late July. Thanks to better than expected economic data, markets now see a 91% chance of a moderate quarter-basis-point cut in November.

A month earlier, investors saw a 25 bp move as certain, and some chance of a 50 basis point reduction.

The possibility of Republican former President Donald Trump winning the U.S. presidential election next month has further buoyed the dollar across the board.

The euro squeezed past its early August levels to $1.07770, its lowest since July 3, down 0.2% on the day, largely a victim of the dollar’s strength, but not helped either by recent weak economic data, and markets shifting to expect more rate cuts from the European Central Bank in the coming months.

ECB policymakers have begun to debate whether interest rates need to be lowered enough to start stimulating the economy, ending years of economic restriction, Reuters reported on Wednesday, citing conversations this week with half a dozen sources.

“The euro has clearly underperformed the British pound in the last two months or so, which also suggests there are some domestic factors affecting it,” said Cobo.

The euro was down 0.1% on the pound on Wednesday at 83.09 pence, hovering around a two-and-a half-year low.

Versus the dollar, the pound was flat at $1.29805 roughly a two-month low.

The dollar continued to pressure other currencies, and was at a two month high on the Swiss franc, up 0.2% at 0.8671 francs and was a whisker higher on the Canadian dollar at C$1.3828, ahead of a Bank of Canada meeting later in the day.

Markets see around a 90% chance of a large 50 basis point rate cut, leaving scope for the Canadian dollar to strengthen if the BoC goes for just 25 bps.

Also to come is the release of the Fed’s Beige Book summary of economic conditions, the latest sign of the health of the U.S. economy.