The US Dollar strengthened on Monday and the cryptocurrency bitcoin hit a three-month high as rising US bond yields and the approaching presidential election continued to weigh on the market.
Currency movements last week were driven by interest rate cuts by the dovish-oriented European Central Bank as well as strong US data, which dampened expectations for further US interest rate cuts, especially if former President Donald Trump wins the election.
The US dollar index, which measures the US dollar against other major currencies, strengthened 0.17% to 103.63.
The US dollar slipped 0.3% on Friday as risk appetite rose broadly in markets after China announced more details on a broad stimulus package, but posted a 0.55% gain for the week.
The euro on the other hand lost 0.16% to $1.0849 and the pound sterling lost 0.18% to $1.3025.
The strengthening of the US dollar is largely due to "interest rates and relative growth," said Erik Nelson, macro strategist at Wells Fargo.
"Got some pretty solid US data, starting with the jobs report earlier this month. Retail sales performed well, GDP also looked stable this quarter. On the other hand, the results in Europe are not so good, the ECB takes a dovish approach".
Polls showing increased chances of Donald Trump winning the November 5 election also helped the US dollar, according to analysts, as his tariff and tax policies are expected to keep US interest rates high and impact other trading partners.
Bitcoin gained support on expectations that the Trump administration would take a softer approach to cryptocurrency regulation. Finally, BTC price fell 0.1% to $68,333 after reaching $69,487, the highest level since late July.
The gap between US and German 10-year bond yields has widened to about 189 basis points (bps) as US yields rose in recent weeks while German bond yields fell.
Data on Monday showed German producer prices fell more than expected in September, down 1.4% year-on-year, mainly due to lower energy costs.
Bond yields in Britain also moved against the pound this month on weaker inflation readings and expectations that Finance Minister Rachel Reeves will announce a bond-friendly budget on October 30.
The difference between US and British bond yields has changed from 24 points in favor of the pound to 3 negative points.
With no major economic data scheduled this week, the market's focus will be on corporate earnings and the US election.
Japan will hold a general election on Sunday, October 27. Although opinion polls differ on how many seats the ruling Liberal Democratic Party (LDP) will win, the market is confident that the LDP with its coalition partner Komeito will win.
