Dollar ticks lower as US election, likely Fed rate cut loom

The dollar slid on Monday as investors braced for a potential pivot this week for the global economy as the United States chooses a new leader, and as it likely cuts interest rates again with major implications for bond yields, reports Reuters.

The euro extended an early climb to be up 0.5% at $1.0891 and looked set to test resistance around $1.0905. The dollar fell 0.6% on the yen to 152.60 . The dollar index eased 0.1% to 103.80.

U.S. Treasury yields dropped 5 basis points (bps), retracing some of Friday’s surge.

Democratic candidate Kamala Harris and Republican Donald Trump remain virtually tied in opinion polls and the winner might not be known for days after voting ends.

Analysts believe Trump’s policies on immigration, tax cuts and tariffs would put upward pressure on inflation, bond yields and the dollar, while Harris was seen as the continuity candidate.

Dealers said the dip in the dollar might be linked to a poll that showed Harris taking a surprise 3-point lead in Iowa, thanks largely to her popularity with female voters.

“Markets are seemingly scaling back some Trump trades, and we suspect the next two days can see some abnormal swings in USD crosses due to tighter volatility conditions ahead of a closely contested and highly binary U.S. election,” ING FX strategist Francesco Pesole said.

“It is widely considered that a Trump win will be positive for the USD, though many feel this outcome has been discounted,” said Chris Weston, an analyst at broker Pepperstone. “A Trump presidency with full control of Congress could be most impactful, as one would expect a solid sell-off in Treasuries resulting in a spike higher in the USD.”