The US dollar edged higher in early European trading on Tuesday, rebounding from one-month lows, as traders digested the increased likelihood that former President Donald Trump will return to the White House and the possibility that the Federal Reserve will begin cutting interest rates by September.

Dollar seeks Trump’s strength

The dollar rose after a spirited reception for Donald Trump on the first day of the Republican National Convention in Milwaukee, just days after he survived an assassination attempt in Pennsylvania on Saturday.

The four-day convention will end with Donald Trump’s prime-time speech on Thursday, when he officially accepts the Republican Party’s nomination to face incumbent Joe Biden in a rematch of what took place in 2020.

The attack has served to bolster estimates of a Trump victory in the scheduled November election, a scenario that would serve to boost the dollar as he has signalled his intention to enact more protection-focused trade policies.

That said, the dollar is still trading just above its lowest level in over a month after comments from the Federal Reserve Chairman indicated the possibility of a rate cut in the coming months, specifically in September.

On Monday, Powell said the three US inflation readings in the second quarter added some confidence that the pace of price increases is returning to the Fed’s target on a sustainable basis.

The comments, likely Powell’s last until his press conference at the end of the Fed’s meeting scheduled for late July, altered expectations of a rate cut.

ECB meeting approaches

EUR/USD rose about 0.1% to 1.0899, with the euro just below its highest level in four months, ahead of the European Central Bank’s meeting on Thursday.

With the European Central Bank expected to leave interest rates unchanged following the June easing, all eyes will likely be focused on Christine Lagarde’s comments at the press conference.

GBP/USD barely traded lower at 1.2963, after hitting a two-year high the previous week.

Political certainty following the landslide election victory of Britain’s centre-left Labour government has helped sterling, especially compared to the turmoil in France and the US.

Yen loses ground

In Asia, USD/JPY rose 0.3% to 158.47, with the yen losing ground and unwinding its recent recovery against the dollar.

The yen’s recent gains had raised expectations that the Japanese government had intervened in currency markets to support the yen.

The Japanese authorities on Tuesday repeated their warnings about intervention, stating that they were prepared to apply all measures at their disposal to curb excessive volatility in foreign exchange markets.

USD/CNY was up 0.1% at 7.2661, with the yuan near eight-month lows, hurt by data showing China’s economy grew less than expected in the second quarter.