Dollar drifts as focus remains on U.S. stimulus talks

Published On: October 22, 2020Categories: Trading2 min read

The dollar index was nearly flat at 92.792, after hitting its lowest level since Sept. 2

The U.S. dollar drifted against most major currencies on Thursday as U.S. stimulus talks remained the focus for markets with trading buffeted over recent days by the extent of progress made on the potential size of the aid package. The dollar index was nearly flat against a basket of currencies at 92.792, having marked its lowest level since Sept. 2 overnight.

On Wednesday, the dollar weakened to a seven-week low after U.S. President Donald Trump and House Speaker Nancy Pelosi boosted hopes an agreement on stimulus was close, sparking demand for riskier assets.

For a while, the pattern has been that when stimulus talks stalled, equities fell and the dollars were being bought due to risk-averse sentiment. But with optimistic headlines like these, the market is inclined to shift to risk-on mood and sell the dollars, said Daisuke Karakama, chief market economist at Mizuho Bank.

But prospects remain dim for the Republican-controlled Senate to approve any aid before the Nov. 3 election, as President Trump accused Democrats of being unwilling to craft an acceptable compromise on stimulus. Separately, Federal Reserve Governor Lael Brainard said the biggest risk to her outlook for economic recovery was that fiscal support from the federal government would be withdrawn too soon.

Analysts said the dollar was also pressured by a surge in currencies such as the sterling, which jumped to a six-week high overnight after Britain’s chief Brexit negotiator said talks with the European Union will resume on Thursday afternoon. In Asian trade, the pound’s uptick paused, down 0.15% at $1.3127.

The euro edged 0.16% lower against the dollar to $1.8420, a fraction below a one-month high of $1.8805 hit on Wednesday. Traders are also awaiting the final debate between President Trump and Democratic rival Joe Biden later in the day, with the key feature this time around being a mute button to allow each candidate to speak uninterrupted.

The Japanese yen drifted away from its four-week high of 104.345 marked overnight, last sitting at 104.74 against the greenback.

Dollar/yen trades are especially on wait-and-see ahead of the presidential debate, said Sumino Kamei, senior analyst at MUFG Bank.

The Australian dollar eased as E-mini futures for the S&P 500 lost more than 0.7% and as the currency remained vulnerable to further policy easing from the Reserve Bank of Australia. The Aussie was last fetching A$0.7090, while the kiwi pulled back slightly to 0.6645 but still held above the near two-week low it touched on Tuesday.

Elsewhere, the Chinese yuan retreated, changing hands at 6.6669, after hitting its strongest level since July 2018.

About the Author: Jonathan Adams

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