Dollar Gains on Cut in Rate Expectations, Pound Falls on Inflation
The U.S. dollar rose Monday, maintaining its recent strength as the election for U.S. president approaches and polls point to a growing likelihood that former President Donald Trump will be the winner.
Dollar Boosted by Confidence in Trump
The dollar remained near its highest levels in over two months, bolstered by growing confidence that U.S. interest rates will decrease at a slower pace than initially expected. This is further supported by recent data showing that the U.S. economy remains healthy.
According to the CME FedWatch tool, traders are largely expecting a 25 basis point rate cut by the Federal Reserve in November.
The dollar has also been buoyed by increasing expectations that Donald Trump will defeat Kamala Harris in the 2024 presidential election, now less than two weeks away.
It is considered possible that the tariff and tax policies proposed by Republican candidate Donald Trump could keep U.S. interest rates high and apply downward pressure on the currencies of trading partners.
“Currency markets appear to be positioning for a Trump victory in next month’s U.S. presidential election. October seems to have been a good month for Donald Trump in opinion polls, and the dollar is rising across the board,” ING analysts mentioned in a note.
Euro Hit by Weaker PPI in Germany
In Europe, EUR/USD was down about 0.1%, trading at 1.0850, after German producer prices fell more than expected in September, declining by 1.4% year-over-year instead of the estimated 1.0%.
European Central Bank policymakers are likely to cut the policy rate to a neutral level between 2% and 3%, although further cuts may be necessary if inflation continues to fall, ECB policymaker Gediminas Simkus mentioned on Monday.
“If disinflation processes take hold… it is possible that rates will be lower than the neutral level,” Simkus, governor of the Lithuanian central bank, told reporters in Vilnius.
GBP/USD fell 0.2%, reaching 1.3022, after data revealed that British property sales prices rose just 0.3% during October, well below the average monthly increase of 1.3%, according to property website Rightmove (RTMVY).
This, coupled with the unexpected drop in services inflation last week, signals that further rate cuts by the Bank of England are likely in the coming months, as the bank seeks to stimulate the U.K. economy.
Yuan Declines After PBoC Rate Cut
USD/CNY rose 0.2% to 7.1120 after the People’s Bank of China cut its benchmark lending rate by 25 basis points.
Over the past month, China has announced its most aggressive round of stimulus measures, including monetary and fiscal policies aimed at boosting sluggish growth.
USD/JPY rose about 0.3%, reaching 149.91, though it remained below the 150 level after briefly surpassing it the previous week for the first time since early August.