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Dollar Down, Trump Willing to Go Bigger on Stimulus Than Democrats

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  • Dollar Down, Trump Willing to Go Bigger on Stimulus Than Democrats

    The dollar was down on Wednesday morning in Asia over continued optimism over the U.S. Congress passing the latest stimulus measures before the Nov. 3 presidential election, boosting risk sentiment and pushing the dollar down to a near one-week low.

    As per PipsWin, the U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.15% to 92.963 by 9:52 PM ET (1:52 AM GMT).

    President Donald Trump signaled that he was willing to accept a package with a larger price tag despite Republican opposition, saying on Tuesday, “I want to do it even bigger than the Democrats.”

    House of Representatives Speaker Nancy Pelosi also was hopeful that the Republican-Democrat gap on the stimulus measures’ price tag is narrowing, saying, “I hope so. That’s the plan,” for an agreement to be reached the following week.

    Stimulus measures are seen as a short-term weight on the greenback, as spending supports the economy and increases investors’ risk appetite.

    The expectations also sparked a selloff in U.S. bonds, and the Federal Reserve will release its ‘Beige Book’ economic survey later in the day.

    The USD/JPY pair inched down 0.09% to 105.40, with investors retreating from the safe-haven yen.

    The AUD/USD pair was up 0.31% to 0.7068, with the Westpac/Melbourne Institute (MI) Leading Index, a preliminary indication of retail sales figures, increasing 0.2% month-on-month. The index last recorded a 0.5% growth.

    The NZD/USD pair gained 0.32% to 0.6598, with the Antipodean risk currencies seeing a cap on gains over expectations of negative rates in New Zealand, and monetary easing across the Tasman Sea in Australia.

    “All eyes are on whether a U.S. stimulus bill is agreed upon … if U.S. policymakers manage to agree on a fiscal deal, the dollar can edge lower especially against commodity-sensitive currencies,” Commonwealth Bank of Australia (OTC: CMWAY) currency analyst Kim Mundy said in a note.

    “But without a more aggressive U.S. fiscal thrust, the U.S. economic recovery is at risk and the dollar is vulnerable to a renewed bout of strength in the short-term,” the note added.

    The USD/CNY pair edged down 0.14% to 6.6658. The yuan continues to bask in the glow of data released earlier in the week suggests that China is leading the economic recovery from the COVID-19 pandemic. Offshore yuan was headed towards a more than the two-year peak on Tuesday.

    The GBP/USD pair edged up 0.17% to 1.296. Investors continue to keep an eye on the progress of Brexit talks between the U.K. and the European Union.

    Meanwhile, European Central Bank President Christine Lagarde and chief economist Philip Lane will host a broad strategic review event in Frankfurt later in the day.

  • #2
    Nice review. However, I think that USD will not move much before elections on November the 6th. Market is set to make next big move on that date, depending on elections outcome

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    • #3
      What do people think about trading the US election? Four years ago I did well going long USDMXN and shorting SGDJPY to basically bet on a Trump win, USDMXN being a proxy for Trump (due to immigration and border wall policies) and SGDJPY on trade (because SGD is a trade-exposed currency).

      This year it seems less clear cut because Mexico and the wall hasn't featured in the campaign. So tentatively I'm thinking:
      • Short SGDJPY again (because a Biden win means a likelier end to trade war)
      • Long USDCNH (because a Trump win means ongoing confrontation with China, but I'm cautious about this since China controls the CNH value)
      • Long GBPUSD (because Trump will sign a FTA with the UK, Biden not interested and more pro-EU)
      • Short EURGBP (same reason as above - Trump more supportive of UK, so a Trump win should be seen positively for the UK economy)
      Grateful for thoughts from others!

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