Dollar Weakens, Yuan Gains; Markets Look to Biden Presidency

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Dollar Weakens, Yuan Gains; Markets Look to Biden Presidency

The dollar edged lower in early European trade Friday as investors start to factor in a Joe Biden presidency and the likelihood of more U.S. stimulus

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The dollar edged lower in early European trade Friday as investors start to factor in a Joe Biden presidency and the likelihood of more U.S. stimulus spending.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 93.528, while USD/JPY was down 0.1% at 105.94.

Elsewhere, EUR/USD climbed 0.1% to 1.1771, GBP/USD rose 0.1% to 1.2950, while the risk-sensitive AUD/USD climbed 0.2% to 0.7178.

The latest opinion polls suggest Americans are steadily losing confidence in President Donald Trump’s handling of the coronavirus pandemic, with his net approval on the key issue this election hitting a record low in a new Reuters/Ipsos poll.

With this in mind, and with Trump refusing to take part in the next presidential debate scheduled virtually for next week, traders are starting to factor in Democrat candidate Joe Biden winning the White House and adjusting their thinking as to what that means for additional stimulus.

“With Biden’s lead extending and the accompanying reduction in the likelihood of a contested outcome, the post-election dollar outlook looks fragile, particularly if larger post-election fiscal stimulus is delivered by the Democrats and the Federal Reserve keeps the narrative of low real rates for longer firmly in place,” said ING analysts, in a research note.

Additionally, talks have resumed between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin over coronavirus aid plans, a mere two days after President Donald Trump abruptly ended them, suggesting the Republicans feel they have lost this diplomatic battle.

Elsewhere, the Chinese yuan soared to a 17-month high, as the country’s markets reopened after the mid-autumn holiday break.

At 2:55 AM ET, USD/CNY traded 1.1% lower at 6.7172, its biggest daily jump in nearly two years. In part this move is a catch-up of the week’s softening of the greenback, but it has also been helped by data released earlier in the day showing that September’s Caixin Services Purchasing Managers Index increased to 54.8 from August’s reading of 54.

Adding to the demand for the yuan is the idea that a Biden presidency would result in a steadier Sino-U.S. relationship, less inclined toward tariffs and trade disputes.

“Polls are showing that Biden is taking the lead… it means the risks of resuming a new trade war are getting smaller, so I think this is positive for the renminbi,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong, in a Reuters report.

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