Dollar Edges Lower; Risk-on Ahead of Powell’s Speech

© Reuters.
© Reuters.

By Peter Nurse

Investing.com – The dollar edged lower in early European trade Tuesday, as an improving appetite for risk after U.S. President Donald Trump’s discharge from hospital led traders to turn away from safe haven currencies.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 93.500, rose 0.1% to 1.1783, supported by a fourth straight rise in that was stronger than expected, while fell 0.1% to 105.69.

President Trump returned to the White House on Monday after a three-night hospital stay. While this doesn’t mean he is completely cured, the market is taking this development as a sign that political risks associated with the election are ebbing.

Also helping the ‘risk-on’ mood was renewed confidence that U.S. lawmakers may be close to a compromise over a new coronavirus relief package after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke by phone for about an hour Monday. They are set to continue their discussions later Tuesday.

As well as Trump’s health, “there is also some market attention on whether the U.S. Congress will pass the extra stimulus bill,” said Tai Hui, Chief Asia Market Strategist, J.P. Morgan Asset Management, in a Reuters report.

“If we do see some form of stimulus coming through, I think the market will take it in a positive light as much of the important support from the previous round has expired,” he said.

That said, moves have been small :the market is awaiting comments from Federal Reserve Chairman Jay Powell, as well as other central bankers, at a meeting of the National Association for Business Economics later Tuesday.

Still, the dollar is likely to see volatile trading in the run-up to the U.S. presidential election, according to foreign exchange strategists polled by Reuters. The greenback rose more than 2% in September, its best monthly performance this year, but is still down more than 3% in 2020.

Elsewhere, rose 0.1% to 1.2990, helped by Prime Minister Boris Johnson and European Commission president Ursula von der Leyen agreeing over the weekend to intensify Brexit talks to close “significant gaps” that stalled progress. 

This has prompted Goldman Sachs (NYSE:) to urge its clients to buy sterling. 

“A joint statement issued on Saturday constituted a clear political signal that enough had been achieved to further intensify technical talks,” Goldman said. 

Without an agreement, the U.K. is set to leave the EU with no deal when the transition period ends at the end of the year.

fell 0.3% to 0.7157 after the Reserve Bank of Australia left rates on hold, as expected, but laid the ground for further monetary easing.

 

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