Dollar Dips on Uncertain US Election, Possible Fed Rate Cut

November 4, 2024

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Key points:

• Dollar down early as traders assess election probabilities.
• Fed and BoE priced to cut by 25 bps, Riksbank by 50 bps.
• China may announce fiscal stimulus measures this week.

The dollar weakened in Asian trading on Monday, setting the stage for a week that could reshape the global economy.

With the U.S. presidential election underway and interest rate decisions expected from multiple central banks, traders are bracing for potential market volatility and shifts in bond yields.

The euro rose 0.4% to $1.0876, approaching resistance at $1.0905, while the dollar fell 0.3% against the yen to 152.45 yen. The dollar index eased 0.3% to 103.94, signalling mixed sentiment as markets weigh election outcomes and potential policy changes.

See: EUR/USD is stabilising near 1.0886 after a recent downtrend, with MACD hinting at potential reversal as seen on the VT Markets app.

Tight Race Adds Uncertainty for Dollar and Yield

Polling shows a tight race between Democratic candidate Kamala Harris and Republican incumbent Donald Trump, with a possible delay in confirming the winner.

Many traders believe Trump’s policy focus on tax cuts, tariffs, and reduced regulation could drive inflation and bond yields higher, strengthening the dollar. Conversely, Harris is viewed as a candidate more likely to maintain current policies, keeping pressure on bond yields steady.

Market participants noted that a recent poll showing Harris with a three-point lead in Iowa—supported largely by female voters—might explain the dollar’s early dip.

Fed Eyes Smaller Rate Cut as Election Uncertainty Looms

Uncertainty around the election outcome could prompt the Federal Reserve to cut rates by 25 basis points on Thursday rather than the larger 50 basis point cut seen in prior months. Futures imply a 99% chance of a quarter-point reduction to 4.50%-4.75%, with an 83% likelihood of another cut in December. 

See also: Asian Markets Brace for U.S. Data

Adding to the potential market shake-up, China’s National People’s Congress (NPC) convenes this week and may announce further stimulus to boost its economy.

Reports suggest Beijing is considering approving over 10 trillion yuan ($1.40 trillion) in extra debt issuance over the coming years, which could provide a lifeline to a sluggish economic landscape.

Traders globally will keep a close eye on developments from the NPC, as any substantial stimulus announcement could impact commodity prices and global risk sentiment.

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