The US dollar dipped against a basket of currencies on Monday, dropping sharply against the Japanese yen as investors zeroed in on U.S. President Joe Biden's decision to end his re-election campaign — as well as the upcoming actions of the Federal Reserve (Fed) and the Bank of Japan (BoJ).
Analysts cited by Reuters suggest the Japanese yen may be at a turning point after its decline since early 2024, with the Fed nearing a rate cut and the BoJ expected to tighten its monetary policy soon.
The Federal Reserve Open Market Committee is set to meet on July 30 — one day prior to the Bank of Japan's policy meeting.
Money markets are fully pricing in a 25-basis-point interest rate cut from the Fed by September.
"The yen has become more volatile ahead of the latest policy meetings from the Fed and BoJ," Lee Hardman, senior currency analyst at MUFG, told Reuters, after flagging that the Japanese currency has been supported by "more compelling evidence of slowing U.S. inflation." He added:
"Furthermore, former President (Donald) Trump has expressed concern over the high level of the U.S. dollar versus the yen”.
The greenback fell 0.6% against the yen, with USD to JPY trading at 156.58 at the time of writing. The dollar index, which measures the U.S. dollar's value against a basket of foreign currencies, dropped 0.15% to 104.24.
On Sunday, Biden announced his withdrawal from the presidential race, endorsing Vice President Kamala Harris as the Democratic candidate for the November election. Harris quickly gained support from many within the party, though prominent figures like former House Speaker Nancy Pelosi — and former President Barack Obama — remained silent.
The "Biden for President" campaign committee has officially been rebranded as the Harris for President committee, retaining the Biden team's infrastructure, staff, and — crucially — its $98 million in cash reserves.
Since Sunday’s announcement, grassroots donors have contributed tens of millions of dollars online to the Harris for President campaign, with online fundraising platform ActBlue reporting $46.7 million from small-dollar donor donations.
Speculation is now mounting about who the former California senator might select as a running mate if she secures the party's nomination at the party’s convention in August. Several Democratic governors are early favorites, with strategists naming Josh Shapiro of Pennsylvania, Roy Cooper of North Carolina, and Kentucky Governor Andy Beshear as some of the likely choices.
As per data cited by Reuters, former President Trump, the Republican nominee, continues to lead betting markets as the potential winner of the November election following Biden's poor debate performance last month and concerns over his age and health.
Joseph Capurso, a strategist at the Commonwealth Bank of Australia, has cautioned against reading too much into the dollar's immediate reaction. He explained that a decline in odds for a Trump win should see the dollar weaken, and vice versa, telling Reuters that polling data was key:
"The bottom line is what the polls show this week. Harris might be a stronger candidate, but is it enough to turn the polls?"
Unicredit noted that the probabilities associated with various US election outcomes have changed little since Biden's announcement on Sunday. The euro rose 0.05% to trade at $1.088.
Analysts highlighted that the European Central Bank did not significantly oppose the strong expectations for a rate cut in September during last week’s policy meeting.
The dollar increased by 0.1% to 7.2943 yuan in offshore trading after the People's Bank of China unexpectedly cut the seven-day reverse repo rate to 1.7% from 1.8%, aiming to improve open market operations and support the real economy. This was soon followed by surprise cuts in the one- and five-year loan prime rates.
Gold prices edged higher on Monday as the dollar weakened, with investors seeking bullion as a hedge against an uncertain political and market outlook after Biden’s decision to drop out.
Spot gold rose 0.1% to $2,402.61 per ounce as of 0758 GMT, while U.S. gold futures increased by 0.2% to $2,403.30.
Gold prices reached an all-time high of $2,483.60 last week, driven by heightened expectations of U.S. interest rate cuts this year. Markets are pricing in a 97% chance of a rate cut in September, as per data from the CME FedWatch Tool.
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