Dollar Surge: U.S. Currency Peaks Amid Election Uncertainty

The U.S. dollar reached a 2-1/2-month high as investors shifted expectations on interest rate cuts due to strong economic data and a close presidential election race. Meanwhile, the yen weakened, driven by rising U.S. Treasury yields and the possibility of a Republican win in the U.S. election.

The U.S. dollar climbed to new heights on Wednesday, reaching a 2-1/2-month peak as investors recalibrated their expectations on interest rates amidst a tight presidential election race. The yen experienced significant movement, sliding to 152 per dollar, a level not seen since July 31, propelled by advancing U.S. Treasury yields.

This surge in the dollar follows three weeks of upward movement, hitting levels not seen since early August. The Federal Reserve's anticipated aggressive interest rate cuts appear to be off the table, with markets now pricing a 91% chance of a moderate quarter-point rate cut in November. A Republican sweep in the upcoming election is seen as the most favorable scenario for the dollar's continued strength.

The outlook has subsequently boosted Treasury yields, impacting the yen. The benchmark 10-year note yield hit a new high since late July, further pressuring the yen. As election day approaches, the potential for former President Donald Trump to return to power has contributed to the dollar's rally, much to the yen's detriment.

(With inputs from agencies.)