The EURUSD currency pair gained to near 1.0890 in Tuesday’s New York session, remaining shy of the key resistance of 1.0900 on presidential election day in the U.S. The DXY Dollar Index, which tracks the greenback’s value against six major currencies, traded steadily near 103.80.
The greenback exhibited a strong buying trend in October as traders were pricing in former US President Donald Trump’s victory. However, it struggles to extend its upside further as traders expect tough competition between Trump and Vice President Kamala Harris.
The likelihood of Trump’s victory has witnessed a pullback after the Des Moines Register/Mediacom Poll showed Harris gaining a slight lead of three points in Iowa state, where the Republican party gained a clear majority in 2016 and 2020.
“A Red Wave (favouring Republicans) would kick-start a sizeable USD rally. It would rekindle memories of US Exceptionalism, anchored by tariffs, tax cuts, deregulation, and negative impacts on the outlook for EZ and China,” according to analysts at TD Securities.
While the US presidential election will be the key event for the Dollar this week, investors will also pay close attention to the Federal Reserve’s monetary policy decision, which will be announced on Thursday.
The Fed is expected to reduce interest rates by 25 basis points (bps) to 4.50-4.75%, according to the CME FedWatch tool. Investors will focus on Fed Chair Jerome Powell’s speech for fresh cues over likely monetary policy action in December.
On the economic data front, investors await the US ISM Services Purchasing Managers Index (PMI) data for October. The Services PMI is estimated to come in at 53.8, lower than 54.9 in September, suggesting that the activities in the service sector expanded but at a slower pace.
While the Euro struggles for direction against the Dollar, it performs weakly against Asia-Pacific currencies after upbeat Caixin Manufacturing and Services PMI. Still, it outperforms other major currencies as traders pare European Central Bank dovish bets.
Market participants expect the ECB to cut the Deposit Facility Rate again in December by a usual size of 25 bps. Earlier, investors were anticipating a 50-bps interest rate cut by the ECB in its last policy meeting of the year as few officials highlighted growing risks to economic growth and emphasised the need for large economic stimulus to boost domestic spending and investment.
The ECB’s large rate cut bets diminished after better-than-expected Eurozone Q3 Gross Domestic Product (GDP) growth, which receded fears of an economic downturn.
Meanwhile, revised German and Eurozone HCOB Manufacturing PMI estimates have improved against flash readings. However, the manufacturing output index remained below the 50.0 threshold, suggesting that the contraction trend remains intact.
EURUSD chart by TradingView
(Source: OANDA)
