Dollar Gaining After Wild Night; No Election Winner Yet
NOVEMBER 04, 2020
As expected, volatility across asset classes is elevated this morning.
Wild price movements started around 9 p.m. Eastern when it started to become apparent that a “blue wave” would not materialize, and President Trump looked to secure victory in Florida.
Many analysts point to the aggressive price action of the Chinese yuan as evidence markets started to price in Trump re-election. However, many of these movements have 100% reversed in the early hours of Wednesday. Some have pointed to trends in Wisconsin and Michigan that favor Mr. Biden.
U.S. equity futures also saw giant swings with S&P 500 futures moving between 2% gains and 1% losses. The safe-haven dollar played off these movements as well, but the correlation between risk and the dollar seemed somewhat disjointed.
It will take some time for the dust to settle and for us to have a clear indication of the dollar’s direction. Contrary to claims last night, neither candidate is victorious yet. What is apparent is that Republicans look more likely to retain the Senate while the Democrats will hold the House. This divided Congress will make a large stimulus deal less likely and could weigh on risk sentiment.
Election-related headlines will continue to dominate trade. However, we will see some fundamental data released as ADP will report private job data at 8:15 a.m. Markit and ISM service data is due out at 9:45 a.m.
What to Watch Today…
- PMI data out; Election Headlines will dominate
How will the three election outcome scenarios affect USD? Find out here…
EUR/USD also experienced strong swings overnight. The Euro initially gained some ground to the greenback, only to drop 1.4% within two hours as President Trump looked strong early. Since about 10 p.m. last evening, the Euro has recovered all its losses and stands about two-tenths of a percent stronger to start our session.
The Euro is stronger this morning even after the Netherlands announced new lockdown measures and the coronavirus surges across the continent. While the overnight moves likely have nothing to do with fundamental economic data, the Eurozone did register better-than-expected PMIs with notable improvements in France and Germany.
Commodity-based currencies led initial losses overnight. The Canadian dollar fell 1.5% and the Australian dollar fell as much as 2.3% in the late hours of Tuesday night. The Mexican peso experienced a wild 5% range within two hours. However, all of the commodity-based currencies have recovered from their knee-jerk reactions from last night. The U.S. dollar has been giving back its gains this morning on pro-Biden headlines in key battleground states. The only thing certain today is increased uncertainty.
Catch the latest movements in FX in our November Currency Outlook…