Oct 22 2024: The U.S. dollar edged lower on Tuesday, though it remained near recent highs as uncertainty looms over the pace of interest rate reductions ahead of the U.S. presidential election.
By 04:40 ET (08:40 GMT), the Dollar Index, which measures the greenback against six other major currencies, was down 0.2% at 103.677, having touched its highest levels since early August overnight.
Dollar Supported by Higher Yields
The dollar retreated slightly on Tuesday but had seen strong demand earlier after the 10-year U.S. Treasury yield climbed to a 12-week high.
On Monday, four Federal Reserve policymakers expressed support for further interest rate cuts following the central bank’s decision to lower rates by a substantial 50 basis points in September. However, there seemed to be some disagreement among the officials over how quickly rates should be reduced.
While three policymakers suggested a “modest” or “gradual” pace due to the uncertain economic outlook, San Francisco Fed President Mary Daly remarked that rates remain “very tight” and the economy’s strength could still justify further cuts.
The dollar has also gained from safe-haven demand, as market participants turned risk-averse with less than two weeks until the 2024 presidential election.
Analysts at ING noted, “The size of the bond and FX moves is being amplified by some deleveraging ahead of the U.S. election. We expect a stronger dollar if liquidity conditions tighten leading up to November 5.”
Euro Rises Ahead of ECB Speeches
In Europe, EUR/USD rose 0.2% to 1.0833, as investors awaited speeches from European Central Bank officials following the ECB’s latest interest rate cut.
“It’s common for ECB members to refine their policy message after a rate decision,” analysts at ING commented. “If we see signs of softening resistance to easing from hawks like Knot and Holzmann, the euro may face additional pressure. On the other hand, hawkish member Kazimir noted that December’s decision remains ‘wide open,’ indicating a dovish shift from his earlier stance.”
Pound Gains as UK Borrowing Hits Record September Levels
GBP/USD climbed 0.2% to 1.3003, despite data revealing that UK government borrowing increased by £2.1 billion compared to September last year, reaching £16.6 billion—the highest figure for September since records began in 1993.
With the Bank of England expected to cut interest rates soon to stimulate the British economy, the rise in borrowing highlights the UK’s fragile financial state ahead of next week’s budget announcement.
Yen Weakens on Political Shift in Japan
USD/JPY edged up 0.1% to 150.91, just below its highest level since late July, as a leadership change in Japan cast doubt on the Bank of Japan’s ability to raise rates further. New Prime Minister Shigeru Ishiba stated that the Japanese economy could not withstand additional rate hikes.
Meanwhile, USD/CNY rose 0.1% to 7.1214, nearing a two-month high after the People’s Bank of China cut its benchmark loan prime rate on Monday.
