Dollar edges up slightly after Biden ends re-election campaign

Mr Biden announced he was exiting the race on Sunday, and endorsed vice president Kamala Harris to replace him as the Democratic candidate in the election

Mon, 22 Jul, 2024 - 16:33

Stefano Rebaudo and Gertrude Chavez-Dregfuss

The US dollar was slightly higher on Monday, capturing some safe-haven flows, as investors digested US president Joe Biden's decision to end his re-election campaign, which is expected to intensify volatility in the currency market.

Investors also looked to next week's crucial monetary policy meetings at the Federal Reserve — which could signal when the first interest rate cut would be — and the Bank of Japan, which could raise interest rates.

However, investors' attention has been fixated on the US presidential race.

Mr Biden announced he was exiting the race on Sunday, and endorsed vice president Kamala Harris to replace him as the Democratic candidate in the election.

Ms Harris quickly received the backing of many within the party, but several high profile names stayed quiet — including former House of Representatives speaker Nancy Pelosi and former US president Barack Obama.

The dollar index, a measure of its value relative to a basket of foreign currencies, rose 0.1% to 104.3.

Republican nominee Donald Trump sits well ahead in betting markets to win the election in November. Picture: Evan Vucci/AP

"Any slight dollar gain is due to a small amount of haven bid after the big political news yesterday ... markets are largely shrugging it off, but it's still a risk event that markets are trying to protect against," said Helen Given, FX trader at Monex USA in Washington.

Former president Donald Trump, the Republican nominee, sits well ahead in betting markets.

"There is a growing consensus that the dollar will be stronger if Mr Trump wins due to tax cuts and tariffs, but it’s more complicated than that as Mr Trump doesn't want a strong dollar," the head of global foreign exchange research at Bank of America, Athanasios Vamvakidis, said.

Some analysts argued it was too early to assess the impact of Mr Biden's move as markets await election polls. Also, the dollar is bound to remain strong no matter who wins the presidential election.

Market participants also pointed out that the Japanese currency could be at a turning point after falling since the beginning of 2024, as the Fed is close to cutting rates and the Bank of Japan is widely expected to tighten monetary policy soon.

The Federal Reserve Open Market Committee will meet on July 30.

Analysts flagged that the European Central Bank offered no concerted pushback at last week's policy meeting on the heavy pricing for a cut in September, which remains a strong base case.