The future of the dollar index amid electoral volatility and Fed decisions – London Business News | London Wallet

The U.S. Dollar Index (DXY) is currently experiencing a downturn, trading below the 104.00 level at 103.72 as of Tuesday.

This decline is closely tied to political tensions surrounding the upcoming U.S. presidential election, with a recent poll showing Vice President Kamala Harris leading at 49% compared to former President Donald Trump’s 46%.

In my view, this lead could further destabilize the dollar as the election nears and competition intensifies in key swing states. Additionally, data released yesterday indicated that Harris is leading in five out of seven crucial swing states, which heightens the pressure on the dollar amidst political uncertainty in the markets.

With the dollar index dipping below 104.00, it’s evident that the price is searching for new support levels, especially as electoral tensions might generate additional volatility in financial markets. Markets are impacted not only by economic data but also by political uncertainties, with elections and geopolitical concerns being major influences on global currency stability. Therefore, in the coming period, I expect heightened volatility as investors increasingly worry about the dollar’s stability if Harris secures a victory, which could reinforce short-term selling pressure on the dollar.

In addition to political tensions, the upcoming Senior Loan Officer Opinion Survey (SLOOS) represents another key factor that could impact the dollar’s outlook. This survey, scheduled for release next Monday, will offer insights into lending conditions, including demand for loans and their terms in the United States, providing a vital gauge of the U.S. economy’s health in the coming months. If the survey reveals tighter lending conditions or weaker loan demand, it may signal an economic slowdown, prompting the Federal Reserve to adopt more accommodative monetary policies—likely intensifying the downward pressure on the dollar.

It’s also worth noting that expectations indicate the Federal Reserve might reduce interest rates by 25 basis points in its next meeting, with a probability nearing 99.7%. Such a rate cut could further drive selling pressure on the dollar, as lower interest rates tend to reduce a currency’s appeal to investors.

Moreover, the yield on the U.S. 10-year Treasury has declined to 4.29%, down from its previous 4.38%, underscoring investor interest in diversifying into assets less susceptible to dollar-linked volatility.

Given these factors, it seems clear to me that the dollar is under mounting pressure from both anticipated political and economic developments. Should Harris’s election chances continue to strengthen and interest rates are indeed lowered as expected, selling pressure on the dollar may persist. The legal challenges Trump has filed in key states may add to the dollar’s instability, especially if the election battle drags on well past Election Day.

Turning to other markets, it appears that positive polling for Harris has positively influenced Chinese stocks, which closed higher on Monday. Meanwhile, European stocks and U.S. equity futures remain directionless, reflecting the cautious stance of global investors. If the dollar’s decline continues, gold—traditionally viewed as a haven—could see a boost as market volatility grows, with investors likely reallocating part of their portfolios toward safer assets.

From a fundamental perspective, I believe the dollar may be on a path of further decline if Harris’s political lead strengthens and the anticipated rate cut materializes. With uncertainties surrounding the election outcome and the high probability of short-term volatility, investors may need to adopt more defensive strategies, possibly shifting toward more stable currencies like the euro or Japanese yen and focusing on safe-haven assets.

In conclusion, the dollar’s future may be governed by several key factors, notably the election results and U.S. monetary policy directions. If political pressure on the dollar continues, and the Fed moves toward easing monetary policies, I expect the dollar to face difficulties in maintaining its current levels.