Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar Weakness Likely Temporary; Presidential Debate Eyed

Published 28/09/2020, 07:54
Updated 28/09/2020, 07:56
© Reuters.

© Reuters.

By Peter Nurse

Investing.com - The dollar edged lower in early European trade Monday, with riskier assets to the fore after signs of economic recovery in China, but the greenback remains near a two-month peak as coronavirus cases continue to rise and political uncertainty in the U.S. reigns.

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 94.552, after climbing to a two-month high of 94.745 last week and posted its biggest weekly rise since early April.

Additionally, EUR/USD gained 0.1% to 1.1633, having dropped to 1.1612 on Friday, its lowest in two months, while USD/JPY was down 0.2% at 105.36. 

Data over the weekend showed an increase in profits at China’s industrial companies for the fourth consecutive month in August, helping those seeking risk to move into equities and out of safe havens like the U.S. dollar.

However, it’s debatable how long this stance lasts as the number of new cases of the Covid-19 virus continue to rise. A number of countries in Europe, including France, Spain and the U.K., have extended restrictions given high infection rates, while four U.S. states in the Midwest reported record one-day increases on Saturday as infections rose nationally for a second week in a row.

Data on U.S. currency futures positions released on Friday also pointed to more upside potential in the dollar's recovery, with speculators holding a big net short position in the greenback.

Investors will be looking to the first presidential debate between President Donald Trump and Democrat Joe Biden scheduled for Tuesday, with the presidential election just over a month away.

Ahead of the debate, the New York Times reported on Sunday that Trump paid virtually no income taxes in recent years as heavy losses from his business enterprises offset hundreds of millions of dollars in income.

“FX markets in Asia Wednesday morning may be the first litmus test of how the dollar will fare in the run-up to the election. One school of thought is that a strong Trump performance is equity positive/dollar negative. We have the view, were Biden to win, the dollar could decline in 2021 on a benign world view,” said analysts at ING, in a research note.

Elsewhere, GBP/USD rose 0.2% at 1.2770, above Wednesday's two-month low of $1.2676, with the final round of scheduled Brexit trade discussions between the EU’s chief negotiator, Michel Barnier, and his British counterpart, David Frost, beginning in Brussels on Tuesday.

Markets are pricing in a 40%-45% chance of Britain exiting the EU trading bloc without any alternative arrangements at the end of 2020 after the U.K. government threatened to ditch parts of its European Union divorce deal this month.

“Given the roughly 50:50 chance of deal vs no deal, we continue to see GBP as inadequately priced for the risk presented, with limited risk premium built into GBP. We thus see risks to GBP on the downside,” ING added.

 

Latest comments

Risk Disclosure: 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.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.