SINGAPORE, Oct 22 — The US dollar clung to a two-and-half-month high today on expectations the Federal Reserve will take a measured approach to interest rate cuts, while a close battle in the upcoming US election kept investors on edge.

The dollar’s strength, boosted by rising Treasury yields, kept the pressure on the yen, euro and sterling - a theme that has been building over the past few weeks as data showed the US economy remained in a good place, resulting in traders scaling back their bets of large and rapid rate cuts from the Fed.

Four Federal Reserve policymakers expressed support yesterday for further rate cuts but appeared to differ on how fast or far they believe any cuts should go.

The diverging views provided a taste of what might be expected at the Fed’s upcoming policy meeting on November 6-7.

Markets are pricing in an 89 per cent chance of the Fed cutting rates by 25 basis points (bps) next month, versus a 50 per cent chance a month earlier, when investors saw an equal likelihood of a larger 50 bps cut, the CME FedWatch tool showed.

Traders are anticipating overall a 41 bps of easing for the rest of the year, with the Fed having kicked off its rate-cut cycle with a 50bps cut in September.

"We think consecutive 25 bp cuts are quite likely in November and December, but we see more uncertainty about the pace next year,” Goldman Sachs analysts said in a note.

"In part because of the election and in part because if the growth data remain strong and the unemployment rate remains stable for a few months, the FOMC could consider slowing the pace at some point.”

The dollar index which measures the US currency versus six rivals was last at 103.96 in Asian hours, having touched its highest level of 104.02 since August 1 yesterday. The index is on course for an over 3 per cent gain in the month.

The euro last bought US$1.081725 (RM4.68), wallowing near its lowest level since August 2, while sterling was at US$1.2982, hovering around its lowest level since August 20.

Election in focus

With the US election just two weeks away, the rising odds of former President Donald Trump winning the November 5 election are boosting the dollar, since his proposed tariff and tax policies are seen as likely to keep US interest rates high.

The election, though, remains tight and too close to call and analysts expect volatility as investors position in the run-up to the results.

"Under a Trump win, we can expect a somewhat tumultuous environment with a lot of uncertainty,” strategists at PineBridge Investments said in a note.

"While a Trump win could be viewed as a short-term tailwind for markets, the picture looks quite different over the longer term... in some ways, we view a Harris win as a ‘status quo’ outcome that would likely continue existing policies and entail a slower-moving process for policy shifts.”

The yield on the benchmark US 10-year Treasury note rose to a 12-week high of 4.198 per cent yesterday. It was at 4.18 per cent in Asian hours.

The rising yields weighed on the yen, which is extremely sensitive to moves in Treasuries. The yen today was at 150.57 per dollar, hovering close to the two-and-half-month low of 150.88.

The focus will be on Japan’s general election on Sunday, October 27. While opinion polls vary on how many seats the ruling Liberal Democratic Party (LDP) will win, markets have been optimistic that the LDP, along with junior coalition partner Komeito, will prevail. — Reuters