Forex
Dollar slips as traders unwind Trump trades before election
By Karen Brettell, Medha Singh
NEW YORK (Reuters) -The U.S. dollar slipped on Monday as investors pulled out of Trump trades, which have benefited in recent weeks from speculation that Republican former President Donald Trump is more likely to win the presidential election on Tuesday against Democratic Vice President Kamala Harris.
“The Trump trade is unwinding,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “We’ve seen a big pullback in the likelihood of a Republican sweep as implied by prediction markets and polling.”
Harris has gained in some polls though overall they show a tight race.
Harris has also experienced improving momentum on election gambling sites and has a slight lead on PredictIt, while Polymarket continues to show Trump as favorite.
Trump’s policies on tariffs and immigration are seen as likely stoking inflation, which would send longer-dated U.S. Treasury yields and the dollar higher.
At the same time, “tariffs and just sheer uncertainty is expected to harm the outlook for other currencies,” Schamotta said.
The currency market is likely to see bigger moves after the election if the party of the new president also controls Congress.
“A Red Wave (favoring Republicans) would kick-start a sizeable USD rally. It would rekindle memories of US Exceptionalism, anchored by tariffs, tax cuts, deregulation and negative impacts on the outlook for EZ and China,” analysts at TD Securities said in a note.
“A Blue Wave (favoring Democrats) is the worst outcome for the USD as markets unwind Trump trades and hedges. The second order effect is that a Blue Wave could start to undermine the USD, as the potential for higher taxes and more regulation starts to see US equities underperform the rest of world,” they added.
The was last down 0.05% at 103.89. The euro gained 0.41% to $1.0878. The greenback weakened 0.54% to 152.16 Japanese yen.
The one-week implied volatility options for euro/dollar were at the highest since March 2023.
The offshore also gained 0.42% to 7.11 per dollar per dollar while the Mexican peso strengthened 0.79% to 20.129.
These currencies had weakened in recent weeks on expectations they would be hurt by new tariffs under a Trump presidency.
Implied volatility for the yuan is at a record high, while that for dollar/Mexican peso is at the highest since April 2020.
also fell 2.08% to $67,758.
Trump is viewed by analysts as enacting more favorable policies for cryptocurrencies than Harris.
The Federal Reserve is expected to cut rates by 25 basis points at the conclusion of its two-day meeting on Thursday, and investors will focus on any clues that the U.S. central bank could skip a cut in December.
October’s jobs report showed that employers added far fewer jobs than economists had expected, which has raised questions over the degree of softness in the labor market.
Recent hurricanes and labor strikes were partially responsible for the weak report.
It came after much stronger than expected jobs gains in September, which led investors to price for fewer Fed rate cuts.
Traders are now pricing 82% odds that the Fed will also cut in December, according to the CME Group’s Fed Watch Tool.
The Bank of England meets on Thursday and is expected to cut by 25 basis points, while the Riksbank is seen easing by 50 basis points and the Norges Bank is expected to stay on hold.
The BoE’s decision has been complicated by a sharp selloff in gilts following the Labour government’s budget last week, which also dragged the pound lower.
The pound was last up 0.2% at $1.2952.
The Reserve Bank of Australia is expected to hold rates steady at its meeting on Tuesday.
The strengthened 0.43% to $0.6587.
Forex
Sterling sags as ‘Trump bump’ lifts dollar
By Amanda Cooper
LONDON (Reuters) – The pound eased modestly against the dollar, which held firm on Thursday, as investors remained laser-focused on who President-elect Donald Trump’s Treasury Secretary pick might be and what that might mean for his policies on growth, trade and taxes.
With the dollar in the ascendant, sterling wilted, last down 0.1% at $1.26405.
It’s risen 1.2% against the euro, which has come under intense pressure against the dollar in particular, as traders try to factor in the potential hit to euro zone growth from an aggressive stance on tariffs from the incoming Trump administration.
The pound got a brief lift the day before from data that showed UK consumer inflation staged an unwelcome pickup in October, confirming the belief in the market that the Bank of England will be one of the slowest among the big central banks to lower rates meaningfully over the coming year.
Even against that backdrop, sterling has fallen by close to 2% against the dollar this month and turned negative on the year.
Money markets currently show traders believe the BoE could lower rates by around 68 basis points by next December. For the Bank’s next meeting on Dec. 19, there’s no expectation of any move at all.
Commerzbank (ETR:) strategist Michael Pfister noted that there is barely a 50% chance priced in for a rate cut in February either.
“We still believe that the next rate cut will take place then. The argument in favour of this is that monetary policy is still likely to be seen as quite restrictive and policymakers will certainly want to avoid falling behind the curve,” he said.
He added that if inflation data shows a sustained pickup, the discussions around a February cut are “likely to intensify”.
Next (LON:) up on the macro calendar are preliminary surveys of business activity for November for the UK, the euro zone, the United States and elsewhere due on Friday.
The most recent Purchasing Managers’ Index (PMI) for October came in at 52 for Britain, above the 50 mark that separates growth from contraction and ranking the UK second behind the United States, which logged a reading of 54 last month.
Friday’s PMI is expected to come in at 51.8, according to a Reuters poll of economists.
Forex
Dollar steady near recent highs; euro suffers more weakness
Investing.com – The U.S. dollar edged marginally higher Thursday, consolidating after recent volatility, while the euro continued to show softness as the situation in eastern Europe becomes more fraught.
At 05:10 ET (10:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 106.690, adding to the previous session’s gains and remaining near last week’s one-year high.
Dollar consolidates near highs
The dollar may have slipped slightly Thursday, but remains in demand as relations between Russia and the West remain extremely fraught, as Ukraine used both US and UK missiles to strike deep into Russian territory.
The US currency has also been buoyed by Donald Trump’s victory in the presidential election, with traders digesting policies aimed at big fiscal spending, higher tariffs and tighter immigration, measures that could foster inflation and potentially slow Federal Reserve easing.
“The DXY is holding gains and it is not hard to see why. US rates are being repriced modestly higher as the market shifts away from pricing a December Fed rate cut,” analysts at ING said, in a note. “Just 8bp of easing is now priced.”
There are data later in the session for investors to digest, while several Federal Reserve officials are also set to speak in the coming days.
Euro heads further lower
In Europe, traded 0.3% lower to 1.0516, after slipping 0.5% on Wednesday, back toward last week’s low of $1.0496, its weakest against the dollar since Oct. 2023.
“EUR/USD looks to have been buffeted by events in Ukraine this week,” ING noted. “The war is going through a period of escalation as both sides seek to gain ground ahead of potential ceasefire discussions early next year. That the Biden administration is providing more support before year-end warns of a more aggressive Russian response – a development which is weighing on European currencies.”
Also weighing is the weak economic climate in Europe, coupled with the potential for a trade war with the new Trump-led US administration.
“The balance of risks on growth and inflation is … shifting to the downside, and possible US tariffs are not expected to alter significantly the inflation outlook in Europe,” ECB policymaker Francois Villeroy de Galhau said earlier Thursday in a speech in Tokyo.
fell 0.2% to 1.2630, after data released earlier Thursday showed that Britain borrowed more than expected in October.
In October alone, stood at £17.4 billion, the Office for National Statistics said, the second-biggest October borrowing total since records began in 1993.
Yen gains on Ueda’s comments
fell 0.7% to 154.38, with the Japanese yen receiving a boost after Bank of Japan Governor Kazuo Ueda said the central bank will “seriously” take into account foreign exchange-rate moves in compiling its economic and price forecasts.
He noted that there is still a month to go until the BOJ’s next policy meeting in December, adding that there will be more information to digest by then.
dropped 0.1% to 7.2415, but the yuan remained close to near four-month lows, pressured by the potential for trade headwinds from a Trump presidency.
Forex
Asian FX muted as dollar remains at 1-yr high; yen steady as inflation rises
Investing.com– Most Asian currencies were muted on Friday as the U.S. dollar remained near a 13-month high, while the Japanese yen steadied after consumer inflation came in slightly above expectations.
Regional currencies have lost ground over the last few weeks, pressured by the strength in the dollar, as caution over a slower pace of interest rate cuts by the Federal Reserve weighed on sentiment. Traders were also on edge over just what U.S. President-elect Donald Trump’s policies will entail for Asian countries, especially China.
The Chinese yuan’s pair rose 0.1% and was near a four-month high. The yuan has depreciated as much as 1.8% against the dollar so far in November, as middling signals on Chinese stimulus measures also weighed on local markets.
The South Korean won’s pair, and the Singapore dollar’s pair were largely flat. Both the currencies have lost nearly 2% each against the dollar, so far this month.
The Australian dollar’s pair was also flat, while the Indian rupee’s pair hovered below record highs, at around 84.5 rupees.
Dollar steady at one-year peak
The was up slightly at 107.06, after touching a one-year high of 107.15 on Thursday. also steadied near a 13-month peak in Asian trade.
Recent data points- particularly last week’s sticky inflation readings and Thursday’s better-than-expected weekly jobless claims- saw traders pare back expectations of the Fed cutting rates in December.
Speculation over Trump’s policies, which could reignite inflation and limit the Fed’s ability to cut rates in the long term, has also supported the greenback.
Traders were cautious about the outlook for the Fed’s interest rate path, and are pricing in a 61.3% chance of a 25 basis points cut at the December meeting, down from 72.2% a week ago, according to .
Fed Chair Jerome Powell recently stated that the central bank is in no rush to cut rates, citing the economy’s resilience.
Overnight, labor data showed weekly initial unexpectedly dropped to a seven-month low, but also showed that it is taking longer for laid-off workers to find new jobs, indicating the unemployment rate could rise this month.
The (PCE) index, the Fed’s preferred measure of inflation, is scheduled for release next Friday and is expected to provide more cues on interest rates.
Japanese yen steady after stronger-than-expected CPI
The Japanese yen’s pair was 0.1% lower after a 0.6% drop in the previous session. But the currency was also nursing steep losses against the dollar through October and November.
Japanese inflation grew slightly more than expected in October, while the core measure rose above the central bank’s annual target band, keeping bets alive for another rate hike by the Bank of Japan (BOJ). A Reuters poll showed on Friday that analysts expect the BOJ to raise rates in December.
Sticky inflation is expected to invite more interest rate hikes from the BOJ, after the central bank raised rates twice so far in 2024.
BOJ Governor Kazuo Ueda on Thursday said that the bank will scrutinise data ahead of its rate review next month, and “seriously” take into account the impact yen moves could have on the economic and price outlook.
Other data showed Japanese business activity shrank for a fifth straight month in November as demand from private sector companies remained stagnant during the period.
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