A day before the vote, the US election shakes up global currencies

A day before the vote, the US election shakes up global currencies

On Monday, just a day before the US presidential election, the dollar fell to its lowest level in two weeks, as investors reacted to uncertainty about the outcome of the election and a possible cut in interest rates by the Federal Reserve.

As analyzed by the agency Reuters, andMeanwhile, the vro gained 0.7% against the dollar, while the US currency lost nearly 1% against the Japanese yen. The dollar index, which measures value against a basket of major world currencies, reached its lowest level in the last 14 days.

After several weeks in which markets favored a Donald Trump victory due to expected economic policies that could raise inflation and bond yields, new polls in favor of Democratic candidate Kamala Harris caused a reversal. Harris’ advantage in several key “swing” states, such as Nevada and North Carolina, has been particularly surprising, prompting investors to withdraw profits from so-called “Trump trades.”

In addition to the election, financial markets are closely watching the upcoming Federal Reserve meeting, where the US central bank is expected to cut interest rates by a quarter of a percentage point. This move, which aims to support the economy due to gradual recovery, additionally affects market volatility. Market analysts indicate that the Federal Reserve may continue with rate cuts in the first half of 2025, which would reduce the ultimate target rate to 3.25% to 3.5%.

In addition to the American central bank, the Bank of England is also expected to make a decision to reduce the interest rate by a quarter of a percent, while the Riksbank in Sweden announced a more significant reduction of half a percent. Norway’s central bank, however, is likely to keep interest rates unchanged. All of these changes come amid growing concern in options markets, where investors are actively seeking protection against possible currency swings after the election.

In China, the National People’s Congress has begun its regular session, and is expected to enact additional economic stimulus measures this week. On the other hand, British market sentiment was shaken after the Labor government’s budget last week triggered a sell-off in bonds and a drop in the pound, which nevertheless partially recovered on Monday.

All these changes in the markets come at a time when implied volatility in currency pairs such as the dollar/yuan and the dollar/Mexican peso have reached record levels. Instability in yuan trading was particularly emphasized, given the importance of the Chinese market in relation to American economic policy.

Source: BIZLife

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