US Dollar Edges Lower as Biden Quits Presidential Election

July 25, 2024 - Written by John Cameron

STORY LINK US Dollar Edges Lower as Biden Quits Presidential Election

GBP/USD Holds Above 1.2900

The Pound to Dollar (GBP/USD) exchange rate dipped to 1.2900 on Friday before a tentative recovery to 1.2925 on Monday as markets focussed on US politics and risk appetite improved slightly.

According to Scotiabank; “Gains back above 1.2950 resistance are needed to steady the short-term outlook for the pound.”

On Sunday evening, President Biden announced that he would withdraw from the November Presidential election and endorsed Vice-President Harris to be the Democrat nominee.

The dynamics of the Democrat decision and election odds will be watched closely in the short term.

City Index analyst Matt Simpson expects politics will have an important impact; "Fed policy and yield differentials are no longer the only game on town, and we're just getting warmed up for the U.S. election."

Pepperstone senior analyst Michael Brown took a similar view; “we’re still four months out from the election. So perhaps one of the biggest takeaways is people are going to start thinking about the election a hell of a lot earlier than we’ve seen in prior political cycles."

Commonwealth Bank of Australia strategist Joseph Capurso expects evidence of a Democrat recovery would curb dollar support while further evidence that the Republicans are ahead would tend to support the US currency.

He added; "The bottom line is what the polls show this week. "Harris might be a stronger candidate, but is it enough to turn the polls?"

Marc Ostwald, chief economist at ADM Investor Services expects congressional elections will be key; “I think it helps to remind people that – and this is probably the more important point – how does this change the outlook for the Congressional vote?”

He added; "This may change that particular perspective. Both races are going to be close, there’s no question about that. But that is actually very material to the outlook for the U.S. dollar, for the U.S. deficit, because it’s about legislation and passing legislation.”

Economic influences will be limited in the very short term, especially with the Federal Reserve in a blackout period ahead of next week’s policy decision.

The latest global PMI business confidence data will, however, be important this week with the European and US releases due on Wednesday.

The data will be important for confidence in the global economy and the relative outlook between the US, UK and Euro-Zone.

Asian developments will be watched closely with China cutting interest rates overnight as the 1-year prime rate was lowered to 3.35% from 3.45%.

The rate cut will have some positive impact on risk appetite which could curb dollar support, but a weaker Chinese currency would have the opposite effect.

ING expects Bank of England interest rates will be the key driver for the Pound. “We are still officially looking for three BoE rate cuts this year (versus two currently priced) and when the UK data allows it, we think sterling will come lower. The 1 August MPC rate meeting will also be the first big opportunity since the UK election to hear what the BoE are really thinking. We see this as a downside risk to sterling too.”

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TAGS: Pound Dollar Forecasts