Election-Driven Dollar Rally Pressures Global Currencies (11.06.2024)

Global markets are highly reactive as the US presidential election unfolds, with a strong dollar pressuring various assets.

The euro plunged to a four-month low against the dollar as Trump's potential lead raised expectations of inflationary policies, while the ECB faces challenges from rising Eurozone inflation. Similarly, the yen weakened against the dollar amid increasing Treasury yields and Bank of Japan's steady rate policies. Gold and silver prices fell as investors adjusted for a stronger dollar and the anticipated Federal Reserve rate cut. GBP/USD holds steady ahead of the Fed's decision, as dollar strength supports a potential 0.25% rate cut.

Euro Plunges on Trump Rally, ECB Concerns

The euro dropped 1.6% to around $1.075 on Wednesday, reaching its lowest point in four months, as the dollar strengthened following early signs that Donald Trump may be on track to win the US presidential election. The outcome of the race is now dependent on key swing states. In recent weeks, the dollar has been supported by Trump trades, driven by market expectations of higher inflation and increased government spending under his economic policies.

In Europe, investors continued to evaluate the European Central Bank's (ECB) policy stance, especially after a surprisingly strong inflation report for the Eurozone. Annual inflation in the region rose to 2% from 1.7% in 2021, surpassing the anticipated 1.9%. Core inflation remained steady at 2.7%, slightly above the expected dip of 2.6%. As a result, markets are now fully pricing in a 25 basis point reduction in the ECB's deposit rate in December, which would be the fourth cut following reductions in June, September, and October.

The first resistance level is at 1.0770 for EUR/USD, followed by 1.0830 and 1.0875 as the next resistance points. The first support level is 1.0700, which aligns with the 200-day moving average. If this level is breached, the next support levels to watch will be 1.0660 and 1.0600.

Yen Weakens as Dollar Surges on Trump Lead

The Japanese yen slid to around 154 per dollar on Wednesday, marking its lowest point in 14 weeks, as the dollar and US Treasury yields surged following former President Donald Trump's early lead over Vice President Kamala Harris in the US presidential race. The election results have largely unfolded as expected, with the outcome now dependent on seven key swing states. In Japan, minutes from the Bank of Japan's latest meeting revealed a broad consensus among policymakers to continue raising interest rates, as inflation and economic conditions align with the central bank's objectives. However, they also acknowledged that global economic uncertainty and volatility in financial markets could influence future policy decisions. Meanwhile, a private survey indicated that sentiment among Japanese manufacturers soured in November, driven by concerns over weakening demand from China and persistent inflationary pressures.

In the USD/JPY pair, the first support level is at 153.80, which coincides with the 200-day moving average. If this level is broken, the next support levels to monitor are 152.20 and 151.50. On the upside, resistance levels are 154.50, 155.70, and 156.60, respectively.

Election Tensions Weigh on Gold Prices

Gold fell more than 1% to around $2,710 per ounce, weighed down by a stronger US dollar as markets reacted to early results in the US presidential election. With polls closed in over two-thirds of states, Donald Trump had secured several early wins, and the election's outcome now hinged on seven key swing states. Investors also kept a close eye on the balance of power in Congress, as it could have significant implications for future tax and spending policies.

In recent trading sessions, speculation that a Trump presidency might spur higher inflation, driven by his promises to raise trade tariffs, led many investors to flock to gold as a hedge against long-term inflation risks. Additionally, the Federal Reserve's upcoming monetary policy decision on Thursday remained in focus, with markets widely anticipating a 0.25% rate cut. This is seen as supportive for gold, as lower interest rates reduce the opportunity cost of holding the non-yielding asset.

On the downside, the first support level for gold is at $2,700, followed by $2,685 and $2,670. On the upside, $2,715 serves as a key resistance level, with $2,735 and $2,758 as the next levels to watch if this resistance is surpassed.

GBP/USD Awaits Fed, Dollar Hits 4-Month Peak

The GBP/USD pair is currently trading around 1.2850 before tomorrow's interest rate decision, following a strong rally in the DXY driven by the US elections. The dollar index surged over 1% to near 105, its highest level in nearly four months, as markets reacted to early results in the US presidential race, where Donald Trump pulled ahead of Vice President Kamala Harris. Investors are also watching the control of Congress, as the results could significantly influence future tax and spending policies. In recent weeks, the dollar has been strengthening on Trump's expected economic policies, seen as inflationary, which would spur higher inflation. On the monetary policy front, the Federal Reserve is widely expected to make a more cautious 25 basis point rate cut on Thursday, as it seeks to balance ongoing inflationary pressures with a slowing labor market.

Key support levels for the GBP/USD pair are at 1.2800, 1.2740, and 1.2700. On the upside, resistance levels to watch are at 1.2870, 1.2900, and 1.2950.

Silver Dips on Dollar Strength, Fed in Focus

Silver prices fell to around $31.50 per ounce on Wednesday, reaching their lowest point in nearly three weeks, pressured by a stronger US dollar after early exit polls indicated a lead for Republican candidate Donald Trump in the US presidential election.

Attention is also focused on the Federal Reserve's upcoming two-day policy meeting, where the central bank is expected to enact a cautious 25 basis point rate cut. Meanwhile, investors are watching the ongoing National People’s Congress in China, where officials are anticipated to announce further fiscal stimulus measures.

The critical resistance levels to watch are 32.10, 32.50, and 33.00. On the downside, 31.50 remains a significant first support level. If this level is breached, the next support levels to observe are 30.90 and 30.50, respectively.