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The dollar started defensively on Tuesday as traders reassessed positions on the day of the U.S. presidential election. Recent polling has complicated market expectations, showing a tighter-than-anticipated race and raising the odds of a Kamala Harris victory, with traders on edge.
The index tested resistance around the 103.80 level, and the most recent high point was 104.24 before a drop towards 103.47. This pullback suggests a lack of strong buying momentum, with traders likely cautious about the next significant move.
Picture: The USDX moving averages converging and MACD indicates limited momentum, suggesting cautious trading ahead, as seen on the VT Markets app.
Traders anticipate that a Harris win could soften the dollar by 1%-2% in the short term as her policies are likely to return the focus to macroeconomic fundamentals, contrasting with Trump’s inflationary tariff strategies.
Against the yen, the dollar was at 152.325, bouncing back from an overnight dip to 151.54, a one-week low.
Carol Kong, a currency strategist at the Commonwealth Bank of Australia, suggested that “financial markets appear positioned for a Harris win, which could lead to modest dollar weakening if she secures the victory.”
Analysts expect that further complications, such as contested vote counts, would add to volatility, potentially delaying the dollar’s recovery.
On the interest rate front, the Federal Reserve is widely expected to cut rates by 25 basis points on Thursday, with further insights into whether additional cuts will proceed in December.
This decision comes on the heels of a softer-than-expected U.S. jobs report, which raised questions about underlying labour market health.
See also: Week Ahead: Disappointing Jobs Data Prefaces US Election
The Bank of England and Sweden’s Riksbank are also set to adjust rates this week, with markets expecting a 25-basis-point cut from the BoE and a more substantial 50-basis-point reduction from the Riksbank. The Norges Bank, however, is expected to hold steady.
This complex landscape reflects how political and economic factors are intertwined, with market participants watching closely for any signal from central banks and political outcomes to refine their currency positioning.
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