The Dollar dropped to its lowest point of the year against the Yen on Wednesday after investors increased their expectations that Democrat Kamala Harris would defeat Republican Donald Trump in the upcoming November election, following a planned debate.

The Japanese currency also gained further support from Bank of Japan board member Junko Nakagawa, who confirmed that the central bank would persist in raising interest rates if the economy and inflation align with its predictions.

Traders were also awaiting a US inflation report that might indicate how aggressively the Federal Reserve will lower rates next week. 

The greenback fell by as much as 1.24% to 140.71 Yen, a level not reached since 28th December, before recovering to trade at 141.16 Yen.

Investors generally expect the Dollar to strengthen if Republican nominee Trump wins, as tariffs could support the currency and increased fiscal spending might lead to higher interest rates. 

On Wednesday, market sentiment was weak, leading investors to move their money from the Dollar into assets like the Yen, the Swiss Franc, and gold, Reuters reports.

“There’s definitely risk-off sentiment that is leading to caution,” according to XTB research director Kathleen Brooks.

“There’s a lot of changes in this economic cycle – monetary, with monetary policy changes, and also political – and that’s what is adding to the sense of unease.”

After the debate, the online betting site PredictIt indicated that Harris' chances of winning increased by 3 cents to 56 cents per $1 payout, while Trump's chances decreased by 5 cents to 47 cents.

The Dollar index, measuring the greenback against six peers, fell 0.22% to 101.43, after reaching a one-week high of 101.77 on Tuesday.

The Swiss Franc gained strength for the second consecutive day, causing the Dollar to drop by 0.2% to 0.8455 Francs. 

Meanwhile, the Euro increased by 0.2% to $1.1039, rallying from an overnight decline to $1.10155, its lowest level since 19th August.

“The FX market is showing some further signs of risk aversion this morning although more from the strong performance of the safe-haven currencies rather than poor performance of the high-beta currencies,” said MUFG strategist Derek Halpenny.