By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The U.S. dollar was slightly higher on Monday in quiet trading overall, as investors digested U.S. President Joe Biden's decision to end his re-election campaign, a scenario which could inject more volatility into the currency market.
Against the yen, however, the dollar weakened after two straight days of gains.
Market participants also looked to next week's crucial Federal Reserve and Bank of Japan monetary policy meetings. The Fed could signal it is ready to start its easing cycle by its next meeting in September, while the BOJ, in contrast, could start to raise interest rates, giving the yen a bit of a boost.
Investors, however, remained fixated on the U.S. presidential race.
The dollar and Treasury yields fell slightly earlier on Monday, a day after Biden announced he was ending his re-election campaign, but that has since been unwound. Former President Donald Trump, the Republican nominee, sits well ahead in betting markets.
"Overall, these moves still suggest investors are, for the most part, looking to (Donald) Trump's first term as the best available guide for what to expect from a potential second one," wrote Jonas Goltermann, deputy chief markets economist at Capital Economics.
"In other words, higher Treasury yields, a stronger dollar, and a generally constructive environment for equities."
Biden has endorsed Vice President Kamala Harris to replace him as the Democratic candidate in the Nov. 5 election.
Harris quickly received the backing of many within the party, but several high-profile names stayed quiet, including former U.S. President Barack Obama. Former U.S. House of Representatives Speaker Nancy Pelosi on Monday afternoon officially endorsed Harris.
The dollar index - a measure of its value relative to a basket of foreign currencies - rose 0.1% to 104.32.
Amo Sahota, executive director of currency advisory firm Klarity FX in San Francisco said of all the currency pairs, the dollar/Mexican peso had the most tangible reaction to the Biden exit. The dollar was last down 0.6% at 17.925 pesos.
"Even though the polls have narrowed only slightly and not significantly, the peso liked the news that there's another candidate other than Biden," Sahota said.
The U.S. election aside, analysts noted that the yen could be at a turning point against the dollar after falling since the beginning of 2024, as the Fed is close to cutting rates and the BOJ is widely expected to tighten monetary policy soon.
The U.S. central bank's rate-setting Federal Open Market Committee (FOMC) and the BOJ will hold two-day policy meetings on July 30-31. Money markets have nearly fully priced in a Fed rate cut by September.
The greenback fell 0.3% versus the yen to 157.10., while the euro was last flat against the dollar at $1.0886.
Analysts flagged that the European Central Bank offered no concerted pushback at its policy meeting last week on the heavy pricing for a rate cut in September, which remains a strong base case.
The dollar firmed 0.1% to 7.29 yuan in offshore trading after the People's Bank of China unexpectedly cut the seven-day reverse repo rate to 1.7% from 1.8%, saying the move would improve open market operations and support the real economy. That was followed minutes later by surprise reductions to the one- and five-year loan prime rates.
The Australian dollar, a proxy for China risks, sank 0.7% to U.S.$0.6640, giving up earlier gains following news of Biden's withdrawal.
In cryptocurrencies, investors are bracing for the launch of exchange-traded funds tracking ether, the world's second-largest cryptocurrency, over the next few days. Market players, however, are not expecting the massive inflows that bitcoin ETFs garnered when they first launched in January.
"The ether ETF launch is a sign of validation to the space," said Darius Tabai, the CEO of Vertex (NASDAQ:VRTX), a decentralized exchange.
"Whether the ether ETF brings a lot of new money is unclear. Bitcoin itself has become this kind of isolated asset. And there's not much spillover from bitcoin into the rest of crypto."
Ether was last down 0.3%% at $3,496, while bitcoin rose 1.8% to $68,182.
Currency
bid
prices at
22 July
08:00
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 104.3 104.22 0.1% 2.89% 104.42 104.
index 18
Euro/Doll 1.0888 1.0883 0.04% -1.36% $1.0903 $1.0
ar 873
Dollar/Ye 157.08 157.48 -0.24% 11.38% 157.615 156.
n 3
Euro/Yen 1.0888 171.38 -0.21% 9.89% 171.65 170.
08
Dollar/Sw 0.8895 0.889 0.06% 5.69% 0.8902 0.88
iss 71
Sterling/ 1.2929 1.2911 0.15% 1.61% $1.2942 $1.0
Dollar 873
Dollar/Ca 1.3752 1.3728 0.19% 3.75% 1.3775 1.37
nadian 06
Aussie/Do 0.6641 0.6685 -0.65% -2.59% $0.6702 $0.6
llar 632
Euro/Swis 0.9682 0.9672 0.1% 4.26% 0.9689 0.96
s 57
Euro/Ster 0.8418 0.8422 -0.05% -2.88% 0.8431 0.84
ling 14
NZ 0.5978 0.6009 -0.49% -5.37% $0.6027 0.59
Dollar/Do 72
llar
Dollar/No 10.9631 10.9225 0.37% 8.17% 11.0062 10.8
rway 781
Euro/Norw 11.9341 11.8737 0.51% 6.33% 11.9695 11.8
ay 58
Dollar/Sw 10.7209 10.6789 0.39% 6.5% 10.7383 10.6
eden 279
Euro/Swed 11.6732 11.6129 0.52% 4.92% 11.6834 11.6
en 001