HG MARKETS:

A too-close-to-call U.S. election campaign kept investors on edge, and the U.S. dollar held onto a 2-1/2-month high on Tuesday due to hopes that the Federal Reserve will implement interest rate decreases gradually. As speculators reduce their expectations on swift rate reduction in the United States, the dollar’s resilience, supported by rising Treasury yields, maintained pressure on the yen, euro, and pound. The release of the Beige Book late on Wednesday, according to some analysts, may pose the greatest threat to the dollar this week. The September 50 basis point rate decrease that began the Fed’s easing cycle was mostly triggered by the prior description of economic conditions. On Monday, four Fed policymakers stated their support for additional rate reduction, although they seemed to disagree over how quickly or how much they should be cut. Markets are pricing in an 87% chance of the Fed reducing rates by 25 basis points (bps) next month, according to the CME FedWatch tool. A month ago, investors saw an equal possibility of a greater 50 bps decrease. For the remainder of the year, traders expect an additional 40 basis points of easing.

The dollar index, which compares the value of the US dollar to six other currencies, was last at 103.87 after reaching its highest level since August 1 on Monday at 104.02. So far this month, the index has increased by over 3%. While sterling traded at $1.3006, close to its lowest since August 20, the euro last purchased $1.0827, close to it’s lowest since August 2. If Thursday’s euro zone PMI data highlights the weak economic conditions in the euro region and increases wagers on further rate cuts by the European Central Bank, it could give the single currency another downward push. Following last week’s dovish speech by President Christine Lagarde, attention will also be on the ECB speakers. The likelihood that former President Donald Trump will win the U.S. election in two weeks is increasing the value of the dollar since his proposed tax and tariff policies are thought to maintain high interest rates in the United States. Analysts predict volatility as investors position themselves in anticipation of the outcome, but the election is still too close to call.

At 4.22%, the benchmark 10-year Treasury note yield increased to its highest level since July 26. This affected the yen, which after hitting an almost three-month low of 151.10 per dollar remained essentially steady at 150.82. Executive Director Takeshi Kato was quoted by Jiji Press on Tuesday as saying that the Bank of Japan is closely examining the upside risks from growing import prices as the yen declines. The yen’s decline coincides with Japan’s October 27 general election. Markets have remained confident that the incumbent Liberal Democratic Party (LDP) and its junior coalition partner Komeito will win, despite differing opinion surveys regarding the number of seats they will secure.