Kathy Lien | Oct 21, 2020 21:39
With 13 days until the U.S. presidential election, it is no surprise to see investors selling U.S. dollars. President Donald Trump and Democratic presidential nominee Joe Biden are locked in a tight race. The polls favor a Biden victory, but investors can’t help but eye these surveys with caution. Trump won’t give up easily, and in key battleground states, voters are very motivated to vote. If Biden wins by the narrow margin, Trump may not leave office willingly.
As we wrote in our 5 Crazy Scenarios for the U.S. Election:
“If it weren’t tragic, it would truly be comic. Two septuagenarians fighting over the Presidency like it was a game of shuffleboard at Century Village. There is every possibility that with COVID, with the U.S.’s highly fractured and badly aged election infrastructure, with key battleground states essentially a tossup, and with a deluge of mail-in ballots that may never be counted by a very badly damaged U.S. Post Office, the results of the U.S. election will be contested in every state, in every county, in every precinct.”
That may be the worst-case scenario.
House speaker Nancy Pelosi is optimistic about getting a relief deal done by the end of the week, but investors are also worried that she’s just dangling the carrot and using it to distract Republicans from the election. We’ll know soon, but the mere possibility that she doesn’t really want a deal until after the election is one of the reasons why investors are starting to dump U.S. dollars. The Fed’s Beige Book report didn’t help. According to the Fed districts, economic activity improved at a slight to modest pace.
Meanwhile, despite a raging second virus wave in many major Eurozone nations, the euro is on a tear. It is almost hard to believe that EUR/USD hit a one-month high on Wednesday. Some of the biggest countries in Europe have implemented new restrictions. And even outside of curfew, Europeans are staying at home as much as possible. This behavior will undoubtedly weigh on growth. The 10-year German–U.S. yield spread also hit a seven-month low, which should drive the currency lower. There’s been some comments suggesting that the ECB is not ready to ease, but if the economy freezes up from a second wave, it will have no choice. The only reason why the euro is strong is because it's attracting demand from investors selling U.S. dollars.
Sterling also hit a one-month high versus the greenback. Brexit deal hopes and mixed inflation data helped to lift the currency. Consumer prices rose 0.4% in the month of September, which was less than expected but stronger than the previous month. Producer prices beat expectations and rose at a faster pace. The durability of the euro and sterling’s rally will hinge upon Friday’s PMI reports.
The New Zealand and Australian dollars saw strong gains today on the back of U.S. dollar weakness. The annualized decline in credit card spending in September was less than the previous month, which helped NZD. AUD, on the other hand, shrugged off a smaller rise in leading indicators. There’s a very clear trend of improving NZ data and weakening AU data that should continue to drive AUD/NZD lower. The Canadian dollar on the other hand failed to participate in the rally. The loonie saw small gains versus the U.S. dollar after Canadian retail sales disappointed. With strong labor market gains, economists were looking for retail sales to rise by 1.1%, up from 0.6% the previous month. However, the gain was a far more modest 0.4%. Excluding autos, the 0.5% increase was also weaker than anticipated. Consumer prices, on the other hand, fell 0.1%, which was right in line with expectations.
Written By: Kathy Lien
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.
More content, faster quotes and charts, and a smoother experience is available only on the App.