Investing.com – The U.S. dollar fell on Monday after U.S. President Joe Biden’s decision to end his re-election campaign, with the euro benefiting despite its weak tone after last week’s European Central Bank meeting.
At 06:00 ET (10:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 103.942, volatile after posting its first weekly gain in three weeks last week.
Dollar falls amid political uncertainty
The dollar fell after news over the weekend that President Biden will not seek re-election and is endorsing Vice President Kamala Harris as his potential replacement.
“Investors will now turn their attention to Kamala Harris’ performance against Donald Trump in the polls – assuming she is named the presidential nominee at the Democratic National Convention on August 19-22,” analysts at ING Bank said in a note.
The dollar received a boost as Trump’s chances of winning the presidency grew after Biden’s disastrous debate performance last month and questions about his age and health.
Key economic data is due out this week on Friday, with June’s personal consumption expenditures index set to test market expectations that the Federal Reserve is almost certain to cut interest rates in September.
Economists expect U.S. core inflation to rise 0.1% for a second straight month, which would bring the three-month annual core inflation rate to its slowest pace this year and below the Federal Reserve’s 2% target.
Euro rises after ECB decision
The pound rose 0.2% against the US dollar to 1.0893, rebounding after weakness following the central bank’s decision to keep interest rates steady at its meeting last week.
Analysts noted that the European Central Bank did not provide any coordinated support at last week’s policy meeting on pricing in a September rate cut, which remains a strong fundamental case.
“This week’s eurozone business sentiment readings, due on Wednesday and Thursday, will help shape the narrative that policy is too restrictive and could prompt a slight decline in the euro,” ING said.
Markets are pricing in the European Central Bank cutting interest rates about twice more during the rest of the year.
Sterling rose 0.1% against the US dollar to 1.2931, after hitting a high of 1.30 for the first time in a year last week following Labour’s decisive election victory, ending 14 years of sometimes chaotic Conservative rule.
“No doubt some will argue that this is a removal of the Brexit risk premium in sterling, helped by new Prime Minister Keir Starmer’s desire to engage more closely with Europe,” ING said.
“While we are somewhat sympathetic to this view, we attribute sterling’s strength more to firm UK inflation and the limited pricing in of interest rate cuts by the Bank of England this year, as well as the dollar’s decline in July on the back of weaker US price data.”
Yuan falls after PBOC cuts interest rates
In Asia, the index rose 0.1% to 7.2727, close to levels last seen in November.
The yuan’s weakness came after the People’s Bank of China unexpectedly cut its benchmark interest rate to further ease monetary policy and support the economy.
The rate cut comes as China faces a slowdown in economic recovery, adding to mounting pressure on the yuan.
The recent weakness in the yuan also came amid concerns about Trump’s presidency, as Trump has maintained a negative rhetoric toward Beijing.
The Japanese yen fell 0.5 percent to 156.63, with the yen continuing to be highly volatile amid speculation that the Japanese government has intervened in currency markets.