Safe-Haven Dollar Rises as Covid Spikes
OCTOBER 26, 2020
The safe-haven U.S. dollar is finding the strength to start the week as stimulus hopes have vanished and Covid cases spike.
American stock futures are sharply lower. The U.S. registered back to back record highs for new coronavirus infections, highlighting how far we still must go to get the virus under control. White House Chief of Staff Mark Meadows admitted that “we are not going to control the pandemic” and put hopes on a vaccine.
There was also no progress towards a stimulus bill over the weekend and with the election just over a week away, we do not expect the two sides to find a middle ground at this late date. The Senate is set to confirm Supreme Court nominee Amy Coney Barret today and then leave Washington.
New home sales are due out later this morning and there are no Fed speakers on today’s docket. Therefore, expect the greenback to take its queues from general risk sentiment, gaining a touch further if stocks continue to slide. There is a slew of data slated for later this week that includes consumer confidence, GDP, PCE, and the University of Michigan sentiment.
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The Euro gave back some of its gains from last week as the European Stoxx 600 Index dropped by nearly a percent. The Euro jumped over 1.5% against its American rival last week.
The European central bank will meet on Thursday and there are no changes to current policy expected. However, there is a growing chorus of those expecting the ECB to add stimulus at their December meeting, especially as coronavirus rates rise in Europe prompting new lockdowns
The British pound was able to shrug off general dollar strength and open the week mostly unchanged versus the U.S. dollar. The sterling was supported after headlines broke reporting that Brexit talks will continue in London until the middle of the week.
The general thinking among traders is that the two sides should be able to reach an agreement on some broad strokes by Wednesday. In the meantime, expect GBP/USD to be driven by headline risk.