Oct 17 2024: The U.S. dollar strengthened on Wednesday, reaching an 11-week high as investors dismissed the likelihood of a significant interest rate cut by the Federal Reserve and priced in the potential for former President Donald Trump to win the upcoming election.
Meanwhile, the British pound fell to a two-month low after weaker-than-expected inflation data in the UK increased the chances of more aggressive rate cuts from the Bank of England. The euro also slipped to an 11-week low ahead of the European Central Bank (ECB) meeting.
As the U.S. presidential election approaches, market attention has shifted toward the race and the Fed’s rate policy. Trump’s proposals, including tax cuts, looser financial regulations, and higher tariffs, are seen as supportive of the dollar. These tariffs could hurt growth in Asia and Europe, pressuring their central banks to cut rates and weakening their currencies, while boosting the dollar.
Amo Sahota, executive director at Klarity FX, noted that several major central banks are expected to cut rates more significantly than the Fed, as their economies are slowing faster than the U.S., providing additional support for the dollar.
Sahota also highlighted Trump’s recent comments on tariffs during an interview with Bloomberg, reinforcing his commitment to protecting U.S. industries from foreign competition. This, combined with polls showing Trump gaining ground, helped lift the dollar.
By afternoon trading, the dollar had risen 0.3% to 103.59, after touching an 11-week high of 103.60.
The euro, the largest component of the dollar index, dropped 0.4% to $1.0855, marking its lowest level since early August. Investors are closely watching the ECB’s upcoming meeting, where policymakers are expected to deliver a 25-basis-point cut.
Pound Under Pressure
The British pound saw one of the largest declines among major currencies, falling 0.7% to $1.2982, its first dip below $1.30 since August 20. This came after data showed that annual consumer price inflation dropped to 1.7% in September, lower than the forecasted 1.9%. This bolstered expectations for a BoE rate cut next month, with another cut likely in December.
The euro rose 0.5% against the pound, trading at 83.62 pence.
In the U.S., traders are pricing in a 97% probability of a 25-bp cut at the Fed’s next policy decision on November 7. A month ago, markets saw a 50-50 chance of a larger 50-bp cut.
Against the yen, the dollar gained 0.4% to 149.76 yen, close to Monday’s high of 149.98 yen, the strongest since August 1.
In other currencies, the Australian and New Zealand dollars weakened, reflecting doubts over stimulus efforts from China, a key trading partner. The Aussie dropped 0.6% to $0.6663, and the New Zealand dollar fell 0.4% to $0.6057.
Currency bid prices as of October 16, 07:37 p.m. GMT:
- Dollar index: 103.55 (+0.29%)
- Euro/Dollar: $1.0859 (-0.31%)
- Dollar/Yen: 149.76 (+0.36%)
- Sterling/Dollar: $1.2981 (-0.71%)
