Dollar Rallies as Stocks Sink; Brexit Worries Return

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Dollar Rallies as Stocks Sink; Brexit Worries Return

The U.S. dollar is up across the board to start the week with the biggest gains coming against the British pound and Norwegian krone.

Overview

A broad sell of in U.S. equities, especially in the tech sector, last week looks to continue into today’s session.  Indeed, Nasdaq futures show the index will open over 2.5% lower this morning, increasing demand for the safe-haven greenback.

Fresh worries over increased trade tensions between the world’s two largest economies is depressing risk appetite globally.  In a speech over the weekend, President Trump said he was going to “end” our reliance on China and indicated he would be open to a complete decoupling of the economies.  Of course, the global economy is tightly intertwined, making a decoupling nearly impossible.  But investors take the words as an indication that the U.S. might step up verbal attacks on the Chinese, especially two months before the election.  If more tariffs materialize, expect stocks to sell-off further and the greenback to benefit.

There is no significant economic data on today’s schedule. Instead, we will focus on developments in Washington as the Senate returns to town to attempt to hammer out a stimulus bill.  China-US relationship and Brexit headlines could also dominate today’s trade.

What to Watch Today…

  • No major events scheduled for today

Complete Economic Calendar can be found here.

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GBP

As one might expect, the British pound is under pressure today as the word “Brexit” dominates headlines.  Fresh worries of a no-deal Brexit have sent the sterling over a percent lower today, adding to losses seen on Friday.  U.K. Prime Minister Boris Johnson is expected to reiterate his position that he is willing to let trade talks fail rather than compromise on what he feels are core Brexit principles.

Pressure will increase on policymakers and the sterling as we approach the mid-October deadline for a deal. While a deal may be had in the end, expect sterling gains to be capped as the Brexit cloud looms.

Also, the U.K. is reported to be adding tighter restrictions on home gatherings as COVID cases begin to surge again.

EUR

The Euro is modestly lower this morning but did not experience the sharp sell-off seen in other currencies.  Data showed that Eurozone GDP fell 14.7% on a year over year basis, slightly besting the flash reading of a 15% contraction.  GDP contracted 11.8% in the second quarter, also marginally better than the initial reading.

Europe looked to be on the upswing as the virus hit the continent earlier than the U.S., but now we see another surge in cases that could weaken the common currency.  Positive COVID cases have been rising in France and Germany, two of the largest economies in the bloc.

The most considerable risk event in the Euro-zone this week will be Thursday’s European Central Bank meeting.

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