Dollar Up Over Shock Trump Cancellation of Stimulus Talks

© Reuters.
© Reuters.

By Gina Lee – The dollar moved upwards on Wednesday morning in Asia, with investors digesting U.S. President Donald Trump’s shock cancellation of talks on the latest stimulus measures.

The that tracks the greenback against a basket of other currencies edged up 0.19% to 93.922 by 10:02 PM ET (2:02 AM GMT).

The cancellation destroyed the sense of calm regained in the market after he was discharged from Walter Reed National Military Medical Center on Monday after being treated for COVID-19, and decreased risk appetite as hopes for the stimulus measures to be passed before the Nov. 3 presidential election evaporated.

Trump’s move also increases the downside risks to the U.S. economy, which was already shaky, but could increase safe harbor flows into assets such as the greenback.

“The reaction is a type of risk-off trade to buy the dollar and the yen against other currencies,” Mizuho Securities chief currency strategist Masafumi Yamamoto told Reuters.

“Without additional stimulus, the U.S. economy will slow, and the global economy will slow,” Yamamoto warned.

Trump, who is still in recovery from COVID-19 and the virus’ highest profile patient remains under medical surveillance, cancelled the talks with Democrats until after the election via a tweet. However, with the number of COVID-19 cases rising in parts of the U.S., the cancellation puts the country’s economic outlook in serious jeopardy.

Federal Reserve Chairman Jerome Powell sounded the warning bell on Tuesday in his keynote speech to the National Association for Business Economics (NABE) conference a mere hour before the Trump bombshell. Powell warned that the U.S. economy could slip into a downward spiral if COVID-19 is not effectively controlled and called for more economic assistance.

European Central Bank (EBC) chief economist Philip Lane also delivered a keynote speech to the conference.

Both the Fed and ECB will release minutes from their respective September meetings later in the day, with investors looking to comments from several Fed speakers over the coming days for further clues to the central bank’s outlook.

The pair inched up 0.06% to 105.68.

The pair edged up 0.16% to 0.7116, steadied earlier in the session after falling over 1% on Tuesday in the wake of Treasurer Josh Frydenberg handing down a budget that forecast an AUD213.7 billion ($152.87 billion) shortfall in fiscal 2021 and pushed debt and deficit to a peacetime record.

The Reserve Bank of Australia (RBA) leaving its rates unchanged at 0.25%. However, expectations that the RBA’s next move could be to cut rates exposes the AUD to more downside risks.

Across the Tasman Sea, the pair inched up 0.02% to 0.6587 The pair remained at 6.7908, with Chinese markets closed for a holiday.

The pair inched up 0.04% to 1.2883, with even optimism over the U.K.’s informal divorce talks with the European Union (EU) failing to shield the pound from the dollar’s gains.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.