Currencies

A second term for Trump is expected to be positive for the dollar, given that he is widely expected to enact more protectionist trade policies that could result in higher inflation. Such a scenario could keep interest rates relatively higher in the long-term.

 The dollar steadied against a basket of currencies on Friday after softer-than-expected inflation data saw the greenback sink to one-month lows, amid increased bets that the Federal Reserve will cut interest rates in September.

A key point of pressure on the dollar was Powell stating that the Fed did not need to see inflation falling below its 2% target to begin cutting rates, only that the bank needed enough confidence that inflation was easing.

The dollar traded in a tight range Wednesday in the wake of Powell’s initial testimony before Congress, with the Fed chair flagging the recent labor market cooling as an increasingly important factor in deciding when the U.S. central bank will start cutting interest rates.  

The currency found little support as a swathe of weak Japanese economic readings furthered bets that the Bank of Japan will have limited headroom to raise interest rates further.

The dollar has stabilized at the start of the new week after being on the back foot following surprisingly soft U.S. payrolls data on Friday, which boosted bets for the Federal Reserve to soon start cutting interest rates.

The dollar traded near two-week lows as traders returned from the U.S. Independence Day holiday ahead of the release of the widely-watched monthly official jobs report, looking for more cues on when the Federal Reserve will start cutting interest rates. 

The dollar retreated slightly Thursday, continuing Wednesday’s weakness, after the release of data showing softer-than-expected ADP employment figures and a weak purchasing managers index reading on non-manufacturing activity.

The yen traded at fresh 38-year lows against the dollar and a record trough against the euro on Wednesday, as the currency continued its downward grind, with Japanese officials largely remaining on the sidelines amid the risk of intervention.

The dollar index has climbed as the prospects of a second Donald Trump presidency have risen over the last few days, boosted by President Joe Biden’s faltering debate performance last week as well as the Supreme Court’s ruling on Monday that Trump has some immunity from prosecution over attempts to overturn his 2020 election loss.