Investing.com - The U.S. dollar edged higher in early European trade Tuesday, climbing away from one-month lows as traders digested the increased chance of former President Donald Trump returning to the White House as well as the likelihood that the Federal Reserve will start cutting interest rates in September.
At 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.952, after falling to the lowest levels since mid-July earlier in the week.
Dollar looks to Trump for strength
The dollar edged higher after Donald Trump received a rapturous welcome on the first day of the Republican National Convention in Milwaukee, just a few days after surviving an assassination attempt in Pennsylvania on Saturday.
The four-day convention will culminate with Trump's prime-time address on Thursday, when he formally accepts the party's nomination to face President Joe Biden in a rematch of their 2020 race.
The attack has bolstered expectations of a Trump victory in the November election - a scenario that could boost the dollar, given he has signaled his intent to enact more protectionist trade policies.
“A stronger dollar appears to be driven by rising bets on a Trump presidency following last weekend's events,” said analysts at ING, in a note. “If markets continue to grow their Trump bets, there are higher chances of wide pre-emptive positioning in the months into November.”
That said, the greenback still trades just above its lowest level in a month after comments from Federal Reserve Chair Jerome Powell signaled the likelihood of a September rate cut.
On Monday, Powell said the second quarter's three U.S. inflation readings "add somewhat to confidence" that the pace of price increases is returning to the Federal Reserve's target in a sustainable way.
The comments, likely Powell's last until his press conference after a Fed meeting set for late July, shifted rate cut expectations.
ECB meeting looms large
EUR/USD rose 0.1% to 1.0899, with the euro just below its highest level for four months, ahead of Thursday’s policy-setting European Central Bank meeting.
The ECB is widely expected to maintain its current rates after they eased in June, and thus attention will be on comments from head Christine Lagarde in the accompanying press conference.
GBP/USD traded marginally lower at 1.2963, having last week climbed to its highest levels seen in over two years.
The political certainty following the landslide election victory for Britain's center-left Labour government has helped sterling gain friends, particularly when contrasting the turmoil in both France and the U.S..
Yen unwinds recent gains
In Asia, USD/JPY traded 0.3% higher to 158.47, with the yen weakening, unwinding more of a recent recovery against the dollar.
The yen’s recent gains had increased speculation over whether the Japanese government had intervened in currency markets to support the yen.
Japanese officials reiterated their warnings on intervention on Tuesday, stating that they were ready to take all possible measures to stem excessive volatility in currency markets.
USD/CNY traded 0.1% higher to 7.2661, with the yuan close to an eight-month low, battered by data showing the Chinese economy grew less than expected in the second quarter.