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Forex

Dollar retreats ahead of election; Fed, BOE also in spotlight

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Investing.com – The U.S. dollar retreated Monday amid political uncertainty ahead of Tuesday’s presidential election and with the Federal Reserve 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 slips ahead of US election

The focus at the start of this week turns to the all-important US presidential election on Tuesday, with the race between Republican Party candidate Donald Trump and Democratic rival Kamala Harris extremely close.

That said, Harris received a particular boost when a respected survey out of the traditionally conservative-leaning state of Iowa showed her leading Trump by three percentage points, due in large part to support among women.

“Markets are seemingly scaling back some Trump trades,” said analysts at ING, in a note, “and we suspect the next two days can see some abnormal swings in USD crosses due to tighter volatility conditions ahead of a closely contested and highly binary US election.”

Analysts believe Trump’s policies on immigration, tax cuts and tariffs would put upward pressure on inflation, bond yields and the dollar.

Additionally, markets were also positioning for a 25 basis point cut by the at the conclusion of its latest two-day policy meeting on Thursday, following the central bank’s decision to roll out a jumbo 50-basis point reduction in September.

Friday’s showed a dramatic slowdown in jobs created in October, but the release was impacted by hurricanes and labour disputes.

“Had it not been for the proximity of the vote, we would have argued a Fed cut would have been net-negative for the dollar, but the implications for FX of this Fed decision will only be assessed once the election volatility has dimmed down,” ING added.

Euro gains on eurozone data improvement

In Europe, traded 0.5% higher at 1.0892, with the pair helped by dollar weakness as well as relatively positive recent data.

The final release saw an increase to 46.0 in October, an improvement from 45.0 the prior month, data showed earlier Monday. While this shows the sector was still in contraction territory, there appears to be some brightness emerging on the horizon.

“Markets have scaled back some European Central Bank dovish bets after the latest eurozone growth and inflation numbers, but probably remain open to pricing back in the chance of a 50bp December cut should Trump win this week,” ING added. “The rationale there is that the ECB will be more inclined to frontload easing given the risk of protectionism under Trump.”

rose 0.3% to 1.2963, bouncing from last week’s losses in the wake of the new Labour government’s budget.

The also meets Thursday and is expected to cut by 25 basis points, although this decision has been complicated by a sell-off in gilts following the budget last week.

“Markets will probably be more interested in hearing what the MPC has to say about last week’s budget,” ING said, given the “Office for Budget Responsibility sees the announced fiscal measures are both pro-growth and inflationary.”

Yen rebounds from three-month lows

fell 0.6% to 152.11, retreating from recent three-month highs on the back of dollar weakness. The yen also benefited from a somewhat hawkish message from the last week.

dropped 0.3% to 7.1009, with focus turning squarely to a meeting of the Standing Committee of the NPC that begins from Monday.

The NPC is widely expected to outline plans for more fiscal spending, with recent reports suggesting the body could approve $1.4 trillion in additional debt over the coming years. 

 

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Sterling sags as ‘Trump bump’ lifts dollar

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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.

© Reuters. FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

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.

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Dollar steady near recent highs; euro suffers more weakness

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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. 

 

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Asian FX muted as dollar remains at 1-yr high; yen steady as inflation rises

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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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