The U.S. dollar showed signs of strength on Wednesday, with the Dollar Index increasing by 0.1% to 104.232. This rise came after a period of volatility in the currency markets due to the U.S. political situation. Vice President Kamala Harris received strong support from the Democratic Party after being endorsed as the presidential nominee by President Joe Biden. Despite this, the current favorite to win the November presidential election remains Donald Trump.
Analysts at ING noted that the dollar has regained losses from a recent soft June Consumer Price Index (CPI) report, with particular gains seen against the Japanese yen (JPY), Swiss franc (CHF), and British pound (GBP).
On the other hand, the euro faced challenges as eurozone business activity data for July showed signs of stalling growth. The HCOB’s preliminary composite Purchasing Managers’ Index dropped to 50.1 from 50.9 in June, indicating limited growth above the 50 mark that separates growth from contraction. This data suggests that the European Central Bank may consider further interest rate cuts to stimulate regional growth, with expectations of up to two rate cuts later this year.
GBP/USD experienced a slight dip, trading 0.1% lower at 1.2898. Despite this, British business activity showed signs of improvement in July, driven by strong manufacturing growth and an influx of new orders. The S&P Global Flash Composite Purchasing Managers’ Index rose to 52.7 from the previous month’s low.
Meanwhile, USD/CAD rose to 1.3796, nearing a three-month low for the Canadian dollar ahead of a Bank of Canada rate-setting meeting. There is an 84% chance of a 25 basis point rate cut, which would be the second cut in two months.
In Asia, USD/JPY fell to 154.81, reaching its lowest level since early June. The yen saw gains as a response to suspected government intervention in the currency market, coupled with positive purchasing managers index data. The upcoming Bank of Japan meeting has sparked speculation about a potential 10 basis point interest rate increase.
The currency markets are in a state of flux, with the U.S. dollar gaining momentum amidst political uncertainties, while the eurozone faces challenges that may lead to further ECB rate cuts. As investors navigate these developments, it is essential to stay informed and monitor key economic indicators to make informed trading decisions.