During today's Asian trading, the US dollar rose moderately against major currencies, while market participants continued to monitor the presidential election race, as well as adjusted their expectations regarding the prospects for easing the Fed's monetary policy.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.17% to 104.25 (the highest value since August 2). Since the beginning of the month, the index has gained 3.45%, as expectations of an aggressive Fed rate cut weakened after a series of positive economic data. According to the CME FedWatch Tool, markets see a 88.9% probability of a 0.25% rate cut at the November meeting (down from 93.7% a week earlier) and a 67.0% probability of a 0.25% rate cut in December (compared to 85.6% a week earlier), with a 0.41% rate cut expected by the end of the year. Today, investors will analyze data on existing home sales for September, as well as the Fed's Beige Book summary of economic conditions. The latest Beige Book pointed to a slowdown in economic growth, with some strengths, and this trend is likely to be repeated in the October report, but an upside surprise seems more likely given recent data has outperformed forecasts. Returning to the topic of the presidential election, markets expect a stronger dollar reaction to the Republican victory, which should pave the way for a more significant increase in trade tariffs combined with tax incentives. According to a new Reuters/Ipsos poll, Kamala Harris had a slight advantage - 46% versus 43% - over Donald Trump. Recall that the presidential elections will be held on November 5.
The yen fell 0.85% against the US dollar, reaching its lowest level since July 31. Rising U.S. bond yields have put significant pressure on the yen, which is extremely sensitive to treasury bond movements. The yen's weakness came at a time when Japan is about to hold general elections (October 27). Recent opinion polls have shown that the ruling Liberal Democratic Party may lose its majority in parliament. The risk of forming a minority coalition government has increased the likelihood of political instability, which will complicate the Bank of Japan's effort to reduce dependence on monetary stimulus.