U.S. Dollar Down, Risk UP Despite Lack of Stimulus Deal

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U.S. Dollar Down, Risk UP Despite Lack of Stimulus Deal

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The U.S. dollar is under pressure this morning as global equities rose despite a lack of progress on a U.S. stimulus bill. 

Overview

In fact, chances of a deal before the election seem to be falling by the minute.  The White House and House Democrats are struggling to keep a positive tone amidst increasing resistance from Senate Republicans to a deal.  Equity traders have shrugged off the lack of progress, perhaps on hopes a deal can be struck after the election.  We are not so sure.  Nevertheless, risk is on the rise and the dollar is suffering.

At 9:45 a.m., the U.S. PMI data will cross the wire.  Economists expect composite PMI to rise to 53.5, up slightly from 53.2 in September.  With no other fundamental data set for release today and the unlikelihood of major changes on the stimulus front, the PMI data will likely set the tone for the rest of the day.

What to Watch Today…

  • PMI at 9:45 am

View this month’s Economic Calendar

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EUR  

The Euro shook off an earlier drop and is on the offensive against the U.S. dollar early this morning.

The common currency was buoyed by strong German data even as Eurozone PMI showed the effects of new Covid lockdowns are a cloud over the region.  IHS Markit’s October composite PMI for the euro area fell to 49.4, below the 50 demarcations between growth and contraction.  French PMI fell to a five-month low.

Germany remained the bright spot as strong manufacturing data outweighed a slipping service sector.  Indeed, the factories number beat estimates rising to 58.0, a two and a half year high.  European stocks are higher today, giving the common currency an added boost.

GBP  

The British pound is unchanged against the greenback this morning but is set for a weekly gain of over 1%.  The U.K. and the E.U. appear to be inching towards a deal but progress has been slow.

The base case scenario for most traders continues to be that the two sides will strike a deal.  The U.K. did sign a trade deal with Japan today, its first major economy since Brexit.  While this deal is small compared to the pending deal with the EU, we will give credit where due.

The sterling was unable to take advantage of strong retail sales. In fact, the U.K. recorded its biggest quarterly jump (17.4%) in sales on record.  Of course, the headline should be taken with a grain of salt as the bounce in sales followed a steep decline in the second quarter.

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