Dollar Remains Under Pressure as Risk Rises; Sterling Drops

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Dollar Remains Under Pressure as Risk Rises; Sterling Drops

The U.S. dollar seesawed between modest gains and losses overnight, opening today’s session in familiar ranges from yesterday. 

Overview

The dollar was under pressure yesterday as equity markets climbed and reduced demand for the safe-haven. Analysts have differing theories for the recent pop higher in equity markets. President Trump’s positive prognosis and the increasing likelihood of a fiscal coronavirus stimulus bill are among the favorites.  Others point to Vice President Biden’s widening poll margins as a sign Americans will not have to wait weeks to know who the next President will be.  Limiting uncertainty will push stocks up and volatility down.  Whatever the reason, American futures are pointing towards a higher open again.

Despite rising commodity prices, the Australian dollar fell half a percent against the U.S. dollar.  The Reserve Bank of Australia kept interest rates at record lows and maintained their dovish outlook for policy saying they will need to support the economy “for some time given the outlook.”

Fed President Jerome Powell will speak today at 10:40 a.m. Eastern.  We will also look for news coming out of Washington about the progress of a possible fiscal stimulus bill before the election.  There is still a wide gap between the Democrat’s $2.2 trillion dollar proposal and the $1.6 bill that is backed by the President.

What to Watch Today…

  • Jerome Powell at 10:40 a.m. EST

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EUR  

The Euro initially sold off overnight, before rebounding and opening the New York session slightly stronger versus its American counterpart.  Data showed that German factory orders bested estimates, giving the common currency a slight boost.

European Central Bank President Christine Lagarde will also speak today.  ECB economist Philip Lane will speak after Powell at the same event.  Lane caused the Euro to sell-off at the end of the summer when he verbally intervened in currency markets.  Therefore, his comments today deserve attention.

GBP  

The British pound fell half a percent overnight as the currency remains at the mercy of headline risk.  It was reported that the European Union has no plans to offer concessions to the U.K. and Prime Minister Boris Johnson before next week’s deadline.  The EU appears to be calling Johnson’s bluff that he will walk away from negotiations.

According to a senior EU diplomat, the EU is ready to drag talks out past the deadline rather than compromising on its own red lines.  Needless to say, expect heightened volatility for the GBP/USD pair.

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