Dollar Struggles as Election Uncertainty Offsets Coronavirus Concerns

Dollar Struggles as Election Uncertainty Offsets Coronavirus Concerns

On Tuesday, the U.S. dollar fell despite increasing concerns about a second wave of coronavirus cases, as investors were sitting on the sidelines ahead of the U.S. presidential elections next week. On Monday, the market saw the steepest sell-off in over a month, along with a bond rally. However, the activity in the foreign exchange market has remained quite muted recently and so the price movements on Tuesday were also very limited. With that said, analysts also stated that investors had become cautious after France, the United States and Russia, all had reached new daily records of COVID-19 cases. 

According to analysts, there is not much movement in prices because investors are reluctant to build any positions before the November 3rd, U.S. presidential elections. The euro fell initially, but it was up again by 0.2% to reach $1.829. There was a 0.2% decline in the dollar index, which measures it against a basket of major currencies, as it reached 92.883. The Swiss franc and the yen, both of which are typically bought by investors when they are nervous, remained mixed. Analysts said that there are a lot of sources of uncertainty due to which no clear trends are able to emerge. 

They further added that the impasse on both Brexit trade deal and U.S. budget talks, along with the implications of the increasing number of coronavirus infection on GDP growth in the fourth quarter are in favor of sterling-dollar and euro-dollar stabilization for now. They said that these are pointing to levels of just above $1.18 and $1.30. There was also a gain in the New Zealand dollar and the more sensitive Australian dollar. However, the yuan declined after it was reported that the central bank in China had managed to neutralize the counter-cyclical factor in their daily yuan midpoint fixing. This had been done to ensure that the fixing was able to reflect the actual market movements as accurately as possible. 

Then, the offshore yen had rebounded and was las seen at levels of 6.6950, which left the dollar high up at by 0.1%. The European Central Bank have a meeting scheduled on Thursday, but analysts are of the opinion that the markets will have a limited reaction. They said that like the rest of the investors, the policymakers at the ECB were also in stasis. According to them, it would be difficult for anything to be able to trigger a big response in the market with the U.S. elections too close, no matter what the economic and financial backdrop may be. 

Just a week ahead of the U.S. presidential elections, polls indicate that Democrat Joe Biden has the lead, but there is tough competition in some of the battleground states that may decide the outcome. Analysts believe that a Biden victory and a Democrat majority in the Senate would have a negative impact on the dollar because it is expected to deliver a big stimulus package that would push up the demand for riskier currencies. There was a decline in Sterling overnight, but it was back up once again on Tuesday.

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