The U.S. dollar rose in early European trading on Tuesday, pulling away from a one-month low as traders digested the growing chance of former President Donald Trump returning to the White House as well as the possibility that the Federal Reserve could start cutting interest rates in September.
At 05:20 ET (09:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 103.952, after falling to its lowest since mid-July earlier in the week.
Dollar Looks to Trump for Strength
The dollar rose slightly after Donald Trump received a warm welcome on the first day of the Republican National Convention in Milwaukee, just days after he survived an assassination attempt in Pennsylvania on Saturday.
The four-day convention concludes with Trump’s prime-time speech on Thursday, when he formally accepts the party’s nomination to face President Joe Biden in a rematch of their 2020 race.
The attack has boosted expectations that Trump will win the election in November — a scenario that could boost the dollar, given that he has signaled his intention to enact more protectionist trade policies.
“The dollar’s strength appears to be driven by increased bets on a Trump presidency following last weekend’s events,” analysts at ING said in a note. “If markets continue to increase their bets on Trump, there is a higher chance of a broad-based preemptive positioning in the months to November.”
However, the dollar is still trading just above a one-month low after comments from the Federal Reserve Chairman that suggested a rate cut could happen in September.
Powell said Monday that the three U.S. inflation readings in the second quarter “add some confidence” that the pace of price increases is returning to the Fed’s target in a sustainable way.
The comments, likely to be Powell’s last until his post-Federal Reserve meeting press conference in late July, have changed expectations for a rate cut.
ECB meeting looms
The euro rose 0.1% to 1.0899, with the euro holding just below four-month highs ahead of Thursday’s policy-setting meeting.
The European Central Bank is widely expected to maintain interest rates after easing them in June, so attention will be focused on the bank president’s comments at the accompanying press conference.
Sterling was slightly lower at 1.2963, after rising last week to its highest level in more than two years.
The political certainty that followed the landslide election victory of Britain’s centre-left Labour government has helped sterling win more friends, especially when compared to the turmoil in both France and the US.
Yen Gives Up Recent Gains
In Asia, the Japanese yen rose 0.3% to 158.47, with the yen’s weakness taking a further bite out of the recent recovery against the dollar.
Recent gains in the yen have raised speculation about whether the Japanese government has intervened in currency markets to support the yen.
Japanese officials renewed their warnings about intervention on Tuesday, stressing that they are ready to take all possible measures to stop excessive volatility in currency markets.
The pound rose 0.1% against the dollar to 7.2661, with the yuan near an eight-month low, hurt by data showing China’s economy grew less than expected in the second quarter.
