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U.S. dollar rises on potential Trump win, Fed rate outlook

Donald Trump

The dollar gained 0.3% to 103.59, after reaching an 11-week high of 103.60

The U.S. dollar firmed on Wednesday, touching an 11-week high, as investors ruled out a hefty interest rate cut from the Fed at the next policy meeting and priced in a potential election victory by former President Donald Trump.

Sterling, meanwhile, slipped to its lowest in two months after softer-than-expected British inflation data offered scope for the BoE to cut rates more forcefully, while the euro skidded to an 11-week low ahead of a ECB meeting.

But with U.S. presidential elections a few weeks away, investors’ focus has shifted to the highly-anticipated race, along with the Federal Reserve’s interest rate path.

Trump’s plan to implement tax cuts, looser financial regulations, and higher tariffs is viewed as positive for the dollar. Higher tariffs, for instance, would have negative implications for growth in Asian and European exporters that could force their central banks lower their interest rates, undermining their currencies, while lifting the dollar.

Amo Sahota, executive director at FX consulting firm Klarity FX pointed out that several major central banks are expected to undertake bigger rate cuts than the Fed because their economies are slowing much quicker than that of the US. That has provided support for the dollar.

He also cited Trump’s interview with Bloomberg News Editor-in-Chief John Micklethwait at the Economic Club of Chicago on Tuesday, where the former president doubled down on his plan to impose high tariffs on U.S. trading partners.

“Trump really went hard into the tariff conversation, although I think he’s just making a point that he’ll do whatever it takes to stop people from,” flooding the market with foreign products at the expense of U.S.-made goods, he said.

Combined that with overnight polling showing Trump necking ahead here, and that’s enough to leave the dollar at the top of the billing, he said.

In afternoon trading, the dollar gained 0.3% to 103.59, after reaching an 11-week high of 103.60.

The euro, the dollar index’s biggest component, declined 0.4% to $1.0855 , after earlier slipping to $1.0853, its lowest since early August.

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