The euro and yen were among the biggest losers on Wednesday as the dollar climbed higher, driven by the nearing U.S. election and traders adjusting their expectations for a slower rate-cutting cycle from the Federal Reserve.
US dollar continues climbing trend
U.S. bond yields, which remain significantly higher than those of some European nations, are bolstering the greenback, according to Marc Chandler, an analyst at Bannockburn Global Forex.
"The ongoing increase in U.S. rates is contributing to dollar gains. The euro has fallen below USD 1.08, while the dollar has surged over 1% against the yen," Chandler noted.
"So far, Japanese officials have been relatively quiet, but that is likely to change. The U.S. two-year yield premium over Germany has widened by about 65 basis points since late September, returning to levels not seen since June. The dollar is strengthening against all G10 currencies, with the exception of sterling, which remains close to unchanged."
On Wednesday afternoon, the euro slipped to USD 1.0774, down from USD 1.0806 the previous day. Meanwhile, the dollar rose to JPY 153.00 against the yen, up from JPY 150.95.
The pound edged up slightly to USD 1.2955 from USD 1.2952, while against the euro, it traded at EUR 1.2023, an increase from EUR 1.1984.
However, analysts at ING foresee a challenging outlook for the pound.
"We continue to identify downside risks for sterling ahead of speeches by Bank of England Governor Andrew Bailey today, tomorrow, and Saturday, as well as the potential for a risk premium to build before the UK budget announcement next week. Cable could still reach 1.28 by the end of the month," analysts from the Dutch bank stated, referring to the pound-dollar exchange rate.
Against the Canadian dollar, the U.S. currency rose to CAD 1.3844, up from CAD 1.3829 a day earlier, ahead of the Bank of Canada’s interest rate decision at 1445 BST.
Lloyds Bank analysts commented: "While the Bank of Canada has been one of the more proactive easers, its policy still appears too tight. Consequently, the market has assigned a 90% probability that Governor Macklem will increase the pace of easing to 50 basis points on Wednesday, lowering the target rate from 4.25% to 3.75%. This rationale should be straightforward to illustrate, particularly with the updated monetary policy report being released alongside the decision.
"Within that report, inflation is expected to be revised downward across the forecast horizon, and already ambitious growth assumptions will likely be adjusted. The economy is likely to take longer to absorb excess supply, with consumption growth anticipated to rebound more slowly compared to July's baseline, hindered by monetary policy and a weaker labor market. The general lagged effects of monetary policy are another reason to accelerate the easing process."
Against the Australian dollar, the U.S. currency rose to AUD 1.5066 from AUD 1.4953.
Versus the Swiss franc, the dollar increased to CHF 0.8673, up from CHF 0.8658.
