By Peter Nurse
Investing.com – The dollar edged higher in early European trade Thursday on safe haven inflows as coronavirus cases continue to mount and the idea of pre-election stimulus in the U.S. is officially consigned to the trash.
At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.483.
Elsewhere, was down 0.1% at 1.1740, while was up 0.1% at 105.28. The risk-sensitive dropped 0.7% to a one-week low of 0.7110, weighed by Australia’s central bank chief hinting at a possible rate cut or bond buying.
The French government on Wednesday declared a public health state of emergency as the increase of coronavirus cases in the country reached worrying levels.
France is just one of a number of countries battling a second wave of the Covid-19 virus, with new cases hitting 100,000 daily in Europe, and governments are having to make tough decisions on localized lockdowns.
This comes as U.S. stimulus plans appear to fatally bogged down, as far as having a timeline ahead of the elections in early November is concerned.
“Getting something done before the election and executing on that would be difficult,” U.S. Treasury Secretary Steven Mnuchin said on Wednesday, adding that he and Democrat House Speaker Nancy Pelosi are still “far apart” on their spending priorities.
Delay has supported the dollar for a few weeks, by weighing on investors’ sentiment and boosting demand for safer assets.
That said, many traders are now looking past the election, with the polls increasingly suggesting a victory for the Democrat candidate Joe Biden.
“We think a Democratic ‘Blue Wave’ would be good for risk and bad for the dollar in 2021 – but clearly many things have to fall into place, not least Covid-19 second waves remaining contained at local levels,” said analysts at ING, in a research note.
“We favour a continued period of consolidation in FX markets over the next month. That should see EUR/USD trading in a 1.17-1.20 range. Thereafter our preference remains for a rally to 1.25 throughout 2021 as clarity emerges on a potential Biden White House and what it means for a return to a rules-based trading system,” ING added.
Elsewhere, traded largely unchanged at 1.3006, remaining near the key 1.30 level with the European Union and Britain now expected to prolong Brexit talks past a mid-October deadline to try to overcome a few tricky issues holding up a new trade agreement.
European Union leaders are set to meet in Brussels later Thursday to discuss progress in the Brexit discussions.
Although the two sides retain differences on the three key issues of fisheries, fair competition and methods of solving disputes, with cable around 1.30, the forex market seems to expect progress in the near future.
“Given the rising concerns of COVID 19 into a cold and wet European winter, the last thing either side need, but more so the UK, is a move to WTO tariffs,” said Chris Weston, head of research at broker Pepperstone, in a Reuters report. “The prospect of a Free Trade Agreement, therefore, seems high.”