Market Analysis

The U.S. dollar gained ground on Monday, maintaining its recent strength as the presidential election approaches and polls indicate a growing likelihood of former President Donald Trump winning.

At 04:30 ET (08:30 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, rose 0.2% to 103.462, following a weekly gain of approximately 0.6%.

Dollar Strengthened by Trump Outlook
The dollar remained near its highest levels in over two months, driven by increasing confidence that U.S. interest rates will decrease more slowly than previously anticipated, particularly as recent data suggest the U.S. economy is holding up well.

The CME FedWatch tool indicates that traders are largely anticipating a 25 basis point rate cut by the Federal Reserve in November.

Additionally, the dollar has been bolstered by rising expectations that Donald Trump will defeat Kamala Harris in the 2024 presidential election, just weeks away.

Trump's proposed tariff and tax policies are viewed as likely to keep U.S. interest rates elevated while putting pressure on the currencies of trading partners.

“FX markets appear to be positioning for a Trump victory in next month's U.S. presidential election. October has been favorable for Donald Trump in opinion polls, and the dollar is gaining across the board,” noted analysts at ING in a report.

Euro Affected by Weak German PPI
In Europe, EUR/USD dipped 0.1% to 1.0850 after German producer prices fell more than anticipated in September, dropping 1.4% year-on-year compared to the expected 1.0% decline.

The European Central Bank is likely to lower its key interest rate to its "natural" range of 2% to 3%, but may need to reduce it further if disinflation becomes entrenched, according to ECB policymaker Gediminas Simkus.

“If disinflation processes take hold... it’s possible that rates could be lower than the natural level,” Simkus, the governor of the Lithuanian central bank, told reporters in Vilnius.

GBP/USD fell 0.2% to 1.3022 after data revealed that asking prices for British homes increased by only 0.3% in October, significantly below the average expected rise of 1.3% for the month, as reported by property website Rightmove.

This, along with a surprising drop in services inflation last week, suggests the Bank of England may implement consecutive rate cuts in the coming months to stimulate the British economy.

Yuan Declines Following PBOC Rate Cuts
USD/CNY increased 0.2% to 7.1120 after the People's Bank of China (PBOC) reduced its benchmark loan prime rate by 25 basis points, a move that follows a series of recent stimulus initiatives from Beijing.

China has announced its most aggressive stimulus measures over the past month, introducing both monetary and fiscal strategies to support its sluggish economic growth.

USD/JPY rose 0.3% to 149.91 but remained below the 150 mark after briefly surpassing this significant level last week for the first time since early August.

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