The US dollar weakened ahead of the US election as the market priced in a 25 basis point rate cut by the Federal Reserve this week

According to the Zhitong Finance APP, the US dollar fell on Monday as investors prepared for the potential turning point the results of this week's US presidential election could bring to the global economy, as well as the significant impact a possible further rate cut by the Federal Reserve could have on bond yields. As of the time of writing, the dollar index was down 0.58%, at 103.67.

Polls show that Democratic presidential candidate Kamala Harris and Republican presidential candidate Donald Trump remain evenly matched. Notably, the results of this presidential election are unlikely to be announced as usual on election day, November 5, or the following day in Eastern Time, but may take several additional days to reveal.

Analysts believe that Trump's policies on immigration, tax cuts, and tariffs will exert upward pressure on inflation, bond yields, and the dollar. Traders noted that the dollar's decline in early trading on Monday may be related to a recent poll. The newly released Selzer poll, which is well-regarded in US political circles, shows Harris unexpectedly leading Trump by 3 percentage points in Iowa, largely due to her popularity among female voters.

JP Morgan analysts stated in a report: “Since last week, Harris's support in the Selzer poll has increased, and some view this poll as an important indicator of the campaign landscape.”

Meanwhile, according to the latest data from the online prediction platform Polymarket, as of the time of writing, the odds of Trump winning this year's US presidential election stand at 56.7%, while the odds of Harris winning are at 43.4%.

Pepperstone analyst Chris Weston stated: “There is a general belief that a Trump victory would be favorable for the dollar, although many think this outcome is underestimated. A Trump with full control of Congress could be the most influential, with expectations of a significant sell-off in US Treasuries leading to a surge in the dollar.” He added: “A Harris victory and a divided Congress could lead to a rapid reversal of the 'Trump trade' and be excluded from pricing. The dollar, gold, Bitcoin, and the US stock market could decline.”

Will the Federal Reserve cut rates by 25 basis points?

The uncertainty surrounding the US election results is one of the reasons the market believes the Federal Reserve will choose to cut rates by 25 basis points on Thursday. The futures market indicates a 99% probability of a 25 basis point rate cut by the Federal Reserve on Thursday, and an 83% probability of a 25 basis point cut in December Goldman Sachs economist Jan Hatzius stated: "We expect the Federal Reserve to cut interest rates four more times in the first half of 2025, ultimately bringing the benchmark rate down to 3.25%-3.5%. However, there is more uncertainty regarding the pace of rate cuts and the final target next year." "Our baseline forecast and probability-weighted forecast are now both more moderate than market pricing."

Meanwhile, several central banks will also announce their latest interest rate decisions this week. The Bank of England is expected to announce its rate decision on Thursday, with a forecasted cut of 25 basis points. The Swedish central bank is also expected to cut by 25 basis points. The Norwegian central bank and the Reserve Bank of Australia are expected to keep rates unchanged this week