By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The U.S. dollar firmed on Wednesday, hitting an 11-week high, as investors ruled out a hefty interest rate cut from the Federal Reserve at the next policy meeting and priced in a potential election victory by former President Donald Trump.
Sterling, meanwhile, tumbled to its lowest in two months after softer-than-expected British inflation data offered scope for the Bank of England to cut rates more forcefully, while the euro slid to an 11-week low ahead of a European Central Bank meeting.
But with U.S. presidential elections a few weeks away, investors' focus has shifted to the highly-anticipated race, along with the Fed's interest rate path.
Trump's plan to implement tax cuts, looser financial regulations, and higher tariffs is viewed as positive for the dollar. Higher tariffs, for instance, would have negative implications for growth in Asian and European exporters that could force their central banks lower their interest rates, undermining their currencies, while lifting the dollar.
Amo Sahota, executive director at FX consulting firm Klarity FX in San Francisco pointed out that several major central banks are expected to undertake bigger rate cuts than the Fed because their economies are slowing much quicker than that of the United States. That has provided support for the dollar.
He also cited Trump's interview with Bloomberg News Editor-in-Chief John Micklethwait at the Economic Club of Chicago on Tuesday, where the former president doubled down on his plan to impose high tariffs on U.S. trading partners.
"Trump really went hard into the tariff conversation...although I think he's just making a point that he'll do whatever it takes to stop people from," flooding the market with foreign products at the expense of U.S.-made goods.
"Combined that with overnight polling showing Trump necking ahead here...and that's enough to leave the dollar at the top of the billing."
In afternoon trading, the dollar rose 0.3% to 103.59, after hitting an 11-week high of 103.60.
The euro, the dollar index's biggest component, fell 0.4% to $1.0855 , after earlier sliding to $1.0853, its lowest since early August.
Investors will be closely watching Thursday's ECB meeting, though if policymakers deliver the currently priced 25-bp cut and President Christine Lagarde refrains from giving too many clues about its rate outlook, the market impact could be muted.
STERLING PRESSURE
The pound, meanwhile, was one of the biggest movers among major currencies, dropping 0.7% to $1.2982 . It dipped under the $1.30 level for the first time since Aug. 20, after data showing the rate of annual consumer price inflation dropped to 1.7% in September from 2.2% in August.