EUR/USD surged around the key resistance of 1.0900 during the European session on Monday. The major currency pair surged as the US dollar (USD) slumped amid rising uncertainty ahead of the US presidential election on Tuesday and the Federal Reserve's (Fed) monetary policy meeting on Thursday.

The US dollar started the week on a bearish note, with the US Dollar Index (DXY) falling below 103.70 as market participants expected a tight race between former President Donald Trump and current Vice President Kamala Harris.

The sharp sell-off in the US dollar came after the release of the Des Moines Register/Mediacom Iowa Poll, which showed Harris leading Trump by three points in the state, Reuters reported. The poll results marked a turnaround from September in a state that Trump won in 2016 and 2020.

Traders see a Trump win as positive for the US dollar and Treasury yields as he has vowed to raise import tariffs and lower taxes, moves that would likely raise inflationary pressures and force the Fed to return to a tighter policy stance. In contrast, a Harris win is seen as a continuation of the current administration's policies, which traders interpret as favorable for risk-sensitive currencies.

Meanwhile, the Fed will meet on Thursday to decide on interest rates. However, the meeting is likely to be overshadowed by the US election results and also by the fact that traders have already fully priced in a 25 basis point (bps) rate cut, which would push the key lending rate lower to 4.50%-4.75%, according to the CME Fedwatch tool.

However, investors will be closely watching for guidance on monetary policy action for its final meeting of the year, which will be held in December. Markets are also expecting the Fed to cut rates by 25 basis points (bps) next month.

Source: FXStreet