Dollar Set for the Biggest Drop in 3 Days Since July
On Thursday, the U.S. dollar losses deepened, which set it on its course for its biggest losing streak in three days in the last three months, as traders are bracing for the outcome of a policy meeting of the U.S. central bank that may hint at more fiscal stimulus. There was also a fall in the safe-haven demand for the currency as Democratic candidate Joe Biden inched closer to victory in the U.S. presidential elections, with election officials counting the votes in battleground states that will determine the outcome. However, when it comes to Congressional elections, the Democratic Party appears to be falling short.
It appears to be more likely that the Senate will stay in Republican hands, which would make it difficult to implement a big fiscal stimulus package. Financial markets were prepared for days and even weeks of uncertainty, as a multi-pronged attack on the counting of votes has been opened up by incumbent President Donald Trump. He is pursuing a recount and lawsuits in a number of states, which is also seen as a negative for the dollar. Market analysts said that the Fed appeared to be a bit of a sideshow for now, but there is a possibility that it may talk about quantitative easing.
Nonetheless, it would still remain negative for the dollar because there will be less stimulus. Against a basket of other major currencies, the dollar declined by 0.5% to reach its lowest level at 92.93 in more than a week. The greenback has weakened on a cumulative basis by nearly 1.2%, which is its biggest fall in three days since late July. The weakness of the dollar was also compounded by a broad decline in the U.S. Treasury yields. In more than three weeks, the benchmark 2 and 10-year maturity debt saw their spreads tightened to their narrowest level.
As the final results of the U.S. presidential elections remains uncertain as yet, it is expected that the Fed will stick closely to their previous statement and would just reiterate their pledge of doing everything possible for helping the economy during the recession triggered by the coronavirus. The Fed’s decision will be made at 1900 GMT. Market analysts predicted that the dollar will get caught between a lack of interest in shorting it due to chances of a Biden win and a haven bid because of the possibility of a disputed election.
Currencies that had been the target of protectionist policies by Trump in recent years saw the biggest gains. The Chinese yuan briefly rose to a two-year high as compared to the greenback. The euro also saw an increase of more than 0.6%, as it exceeded the $1.18 mark from the last session with some investors betting on a Biden victory. Analysts said that the euro had been fluctuating too much in the last few days, but it does seem likely that a Biden victory would make it stronger. The British pound reached $1.30 after the bond purchase plan was extended by the central bank.