By Peter Nurse
Investing.com – The dollar edged higher in early European trade Monday, with negotiations over the latest stimulus measures in the U.S. seemingly in difficulties as the election approaches.
At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 1% at 93.108, regaining a little ground after recording its biggest loss in six weeks on Friday, falling to a near-three-week low of 92.997.
Elsewhere, dropped 0.1% to 1.1814, was down 0.1% at 105.50, was flat at 1.3050, while the risk-sensitive fell 0.2% to 0.7227.
The dollar had been hard hit Friday on hopes that a deal for new U.S. stimulus would be reached, reducing the need for this safe haven currency, after the Trump administration proposed a new $1.8 trillion package.
However, this offer ran into opposition from both sides, with the Democrats saying it was not comprehensive enough and the hard-line Republicans worried about the extent that this would increase the country’s debt pile.
That said, this rebound in the dollar, limited as it is, may be short-lived if Goldman Sachs (NYSE:) is to be believed. The influential investment bank suggested the greenback could well slump to its lows of 2018–when the fell below 89–on the rising likelihood of Joe Biden winning the U.S. election and progress on a coronavirus vaccine.
“The risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome — a win by Mr. Trump combined with a meaningful vaccine delay,” Goldman strategists wrote in a note Friday. “A ‘blue wave’ U.S. election and favorable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows.”
Elsewhere, the Chinese yuan weakened Monday after the People’s Bank of China said it will lower the reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading, a move which is seen keeping the yuan’s strength in check.
The yuan hit a 17-month high on Friday, having gained more than 6% against the dollar since late May. At 2:55 AM ET, traded 0.3% higher at 6.7160.
Additionally, climbed 0.5% to 7.8977, with the lira weakening despite the Turkish central bank raising the remuneration rate applied to lira required reserves to 7% from 5%.
Turkey’s central bank raised interest rates in September, for the first time in two years, to provide a boost to a currency which is down 34% year-to-date. Forex traders smell weakness as Turkey has used up a lot of its foreign exchange reserves during the coronavirus pandemic, and further losses look likely.
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