The dollar slipped in Asian markets early Monday as investors brace for a potentially crucial week for the global economy. With the United States set to elect a new president and the Federal Reserve expected to cut interest rates, bond yields and the dollar may face significant fluctuations.
The euro rose 0.4% to $1.0876, facing resistance near $1.0905, while the dollar fell 0.3% against the yen, trading at 152.45 yen. The U.S. dollar index saw a 0.3% drop, resting at 103.94. A recent poll indicated a narrow lead for Democratic candidate Kamala Harris in Iowa, adding to market uncertainty. Kamala Harris and Republican Donald Trump remain neck-and-neck in national opinion polls, and analysts suggest the final election outcome could be delayed, prolonging volatility in the dollar and other assets.
Analysts point out that Trump’s policies on immigration, tax cuts, and tariffs may drive inflation and bond yields higher, strengthening the dollar. Harris, seen as a continuity candidate, would likely sustain existing economic policies. Should Donald Trump secure the presidency and control of Congress, U.S. Treasury yields could spike, pushing the dollar upward. In contrast, a Harris win with a divided Congress could signal a reversal of Trump-era market trends, potentially leading to a decline in the dollar, gold, and bitcoin.
Amid election uncertainty, the Federal Reserve is anticipated to cut rates by 25 basis points on Thursday. Market futures show a near-certainty for this move, with another 25-basis-point cut likely in December. Economists project four additional cuts through the first half of 2024, bringing the terminal rate to around 3.25%-3.5%. Goldman Sachs economist Jan Hatzius noted that the forecast has become slightly more dovish than current market pricing.
The Bank of England (BoE) is expected to lower rates by 25 basis points on Thursday, while Sweden’s Riksbank is predicted to ease rates by 50 basis points. Norway’s Norges Bank is expected to keep rates steady, and the Reserve Bank of Australia, holding its Tuesday meeting, is also expected to maintain rates. In the UK, the BoE’s decision has been complicated by a sell-off in gilts following last week’s Labour budget, which pushed the pound lower. Sterling recovered some losses early Monday, trading at $1.2963.
China’s National People’s Congress, convening from Monday through Friday, is anticipated to introduce more economic support measures. Sources suggest Beijing is planning to approve over 10 trillion yuan ($1.40 trillion) in extra debt over the next few years to revive its economy.
As the U.S. election and Fed meeting unfold, global markets remain on high alert, with potential shifts in both bond yields and currency valuations expected in the coming days.
