MILAN/NEW YORK, July 22 (Reuters) - The U.S. dollar was slightly higher on Monday, capturing some safe-haven flows, as investors digested U.S. President Joe Biden's decision to end his re-election campaign, which is expected to intensify volatility in the currency market.
Investors also looked to next week's crucial monetary policy meetings at the Federal Reserve, which could signal when the first interest rate cut would be, and the Bank of Japan, which could raise interest rates.
But investors' attention has been fixated on the U.S. presidential race.
"Any slight dollar gain is due to a small amount of haven bid after the big political news yesterday ... markets are largely shrugging it off, but it's still a risk event that markets are trying to protect against," said Helen Given, FX trader at Monex USA in Washington.
Biden announced he was exiting the race on Sunday, and endorsed Vice President Kamala Harris to replace him as the Democratic candidate in the November election.
Harris quickly received the backing of many within the party, but several high profile names stayed quiet, including former House of Representatives Speaker Nancy Pelosi and former U.S. President Barack Obama.
Former President Trump, the Republican nominee, sits well ahead in betting markets.
The dollar index - a measure of its value relative to a basket of foreign currencies - rose 0.1% to 104.3.
"There is a growing consensus that the dollar will be stronger if Trump wins due to tax cuts and tariffs, but it’s more complicated than that as Trump doesn't want a strong dollar," said Athanasios Vamvakidis, head of global forex research at BofA.
Some analysts argued it was too early to assess the impact of Biden's move as markets await election polls in the next few days and weeks. Also, the dollar is bound to remain strong no matter who wins the presidential election.
Market participants also pointed out that the Japanese currency could be at a turning point after falling since the beginning of 2024 as the Fed is close to cutting rates and the BoJ is widely expected to tighten monetary policy soon.
The Federal Reserve Open Market Committee (FOMC) will meet on July 30, a day before the Bank of Japan.
Money markets have fully priced in a Fed rate cut by September.
The greenback dropped 0.4% versus the Japanese yen to 156.82.
The euro was down slightly against the dollar at $1.0875 .
Analysts flagged that the European Central Bank offered no concerted pushback at last week's policy meeting on the heavy pricing for a cut in September, which remains a strong base case.
The dollar firmed 0.1% to 7.295 yuan in offshore trading after the People's Bank of China unexpectedly cut the seven-day reverse repo rate to 1.7% from 1.8%, saying the move would improve open market operations and support the real economy. That was followed minutes later by surprise reductions to the one- and five-year loan prime rates.
The Australian dollar sank 0.8% to US$0.6631, giving up earlier gains following news of Biden's withdrawal.
In cryptocurrencies, investors are bracing for the launch of exchange-traded funds tracking ether, the world's second largest cryptocurrency, over the next few days. But market players are not expecting the massive inflows that bitcoin ETFs garnered when they first launched in January.
"The ether ETF launch is a sign of validation to the space," said Darius Tabai, chief executive officer at Vertex, a decentralized exchange.
"Whether the ether ETF brings a lot of new money is unclear. Bitcoin itself has become this kind of isolated asset. And there's not much spillover from bitcoin into the rest of crypto."
Ether was last down 1.6% at $3,450 , while bitcoin edged down to $66,894 .
Reporting by Stefano Rebaudo in Milan and Gertrude Chavez-Dreyfuss in New York; Editing by William Maclean, Kirsten Donovan
