Dollar rebounds as stimulus talks fizzle

The US dollar recoups losses

The US dollar recouped all of its previous day’s losses overnight, as the stimulus trade ran out of momentum and US Treasury yields continued to firm. The US dollar index rose 0.35%, rallying back through 93.00, with US dollar strength continuing this morning.

Amongst the major currencies, the sterling was the notable underperformer, as Covid-19 lockdowns escalate, and the Brexit trade negotiation premium quickly faded. A breakthrough on the Brexit talks still has the potential to cause a massive spike in sterling, but markets, for now, are looking to see substance over speculation. Amongst the rest of the G-10, the US dollar rally appears to have been driven by a desire to take risk of the board, as the weekend and the US elections get closer.

Asian currencies have had a quiet morning as traders followed the US presidential debate. The PBOC fixed the CNY slightly weaker this morning at 6.6703, which is likely to take the edge of any US dollar selling as the presidential debate ends. Asian markets are likely to sit out the session in a wait-and-see mode, wary of headline risk from the US stimulus negotiations, with the US presidential debate passing without incident.

On the stimulus front, progress continues to be made, apparently. Financial markets are mostly range trading, as the street finally prices in the reality that the US Senate may stand in the way of a stimulus agreement agreed between Nancy Pelosi and Donald Trump. This is the harsh reality for Trump, even though the Senate is controlled by the Republicans. This political oddity is due to the fact that President Trump’s influence over the Senate Republicans is now weak at best, moving inversely to his slump in national polls. With quite a few Senate jobs on the line on November the 3rd, Republicans need to worry about winning re-election, and a massive spending bill is not the way to win the support of voters who are fiscally conservative and have little love for government spending programs.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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