Dollar Flat; Holding Weekly Gains as Stocks Fall
OCTOBER 30, 2020
The safe-haven U.S. dollar enjoyed broad gains this week as investors sought the relative safety of the greenback.
The Dollar Index is up 1.2% so far this week. However, the dollar was mostly unchanged overnight even as global equities continue to tick lower. Indeed, global equities are set for their worst weekly decline since the beginning of the pandemic in March.
U.S. equity futures again point to a lower open, dragged lower by technology stocks. The U.S. registered a record daily high for new cases yesterday, also weighing on sentiment.
Market participants are also highly focused on next Tuesday’s election. Early voting has already generated 60% of the entire 2016 vote totals. Most expect that we will not see clear results on Tuesday night which is likely to increase volatility. A prolonged contested election will undoubtedly weigh on risk sentiment and likely give the greenback a boost. A quick result, no matter the victor, could weaken the greenback initially as investors rush back into equities. The only thing certain about next week is uncertainty.
This morning’s data was bright with both personal spending and personal income beating estimates. Spending rose 1.4% month over month, better than the 1% estimate. Personal income ticked up 0.9%, doubling expectations of a 0.4% increase. There are no Fed speakers ahead of next week’s FOMC decision.
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The Euro fell nearly a percent yesterday, marking its biggest daily decline in two months as several of the Union’s biggest economies instituted new lockdown measures. The common currency was also weighed down by comments by European Central Bank President Christine Lagarde who confirmed what most analysts already believed; the ECB will examine more stimulus measures in December.
While the Euro has stopped the bleeding this morning, it was unable to take advantage of strong fundamental data. German GDP surprised to the upside with 8.2% quarter over quarter GDP growth, beating expectations of a 7.3% rise. French GDP also beat estimates.
While the U.S. dollar was mostly unchanged, the Japanese yen became the haven of choice. The yen gained against all its G-10 counterparts after Apple, Inc, missed its earning targets which sparked a pre-market sell of in American tech companies.
The yen also benefited from being a safe haven not named “dollar” ahead of the U.S. elections. As stated above, a long delay in getting election results will benefit safe havens at the expense of riskier assets.
Despite the risk-off tone this week, the yen is only half a percent stronger versus the U.S. dollar this week, but it is up 1% over the past two weeks.