Dollar Enjoys Strong Rally as Stocks Dump

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Dollar Enjoys Strong Rally as Stocks Dump

OCTOBER 28, 2020

The safe-haven U.S. dollar is enjoying a healthy rally across the board this morning at the expense of risker assets as the rate of new coronavirus infections continues to climb. 

Overview

In addition, the rate of hospitalization also continues to rise, especially worrying rates in the Midwest.  Overall, the greenback is at its strongest level in a week.

Risk has been “off” this week on coronavirus news and as Congress left Washington without a stimulus deal.  For example, the Dow Industrial Average fell a combined 900 points Monday and Tuesday and futures show the index will open an additional 500+ points lower today. Many analysts point to a possible contested election as reasons to send equities lower, benefiting the greenback.

There is not any top tier data to be released today so currency markets will rely on general risk sentiment with the greenback likely to have more room to gain throughout the day if stocks continue to dump.

What to Watch Today…

  • No major events scheduled for today

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EUR  

The Euro is among the currencies that is under heavy pressure versus the U.S. dollar this morning.  EUR/USD is headed for its worst three-day loss in a month and the pair touched its lowest level in more than a week.  European stocks are sharply lower and touched a five-month low as some of the EU’s largest economies weigh new lockdowns.  French President Macron will address the nation tonight and he is widely expected to announce a one-month lockdown.  France registered its highly daily death count since April this week.

German Chancellor Angela Merkel is also expected to shutter bars and restaurants until the end of November.

The result is a rising expectation that the European Central Bank may take a more dovish slant at their meeting on Thursday.  We still do not expect the central bank to announce news monetary stimulus this week, but members may more clearly telegraph their plans for the December meeting.

GBP  

British pound traders got a break from Brexit headlines and instead focused on Covid.  The sterling suffered versus the safe-haven dollar.

The second wave in cases in the U.K. looks to mirror that of mainland Europe. Britain registered its most new cases since the end of May.  Prime Minister Boris Johnson’s government will under renewed pressure to enact measures to slow the spread, but he seems resistant so far.

There was no major data released in the U.K. today.

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