Market Overview

Dollar dips as investors bet on Biden victory

The U.S. dollar dipped on Tuesday as risk appetite grew on bets that Democrat Joe Biden will win Tuesday’s U.S. presidential election and launch a large new stimulus package, and as the greenback faced resistance at the top of its recent range. Biden has led in national polls but President Donald Trump is close in enough swing states to possibly piece together the 270 state-by-state Electoral College votes needed to hold on to the presidency, which he won in a surprise 2016 election result.

Analysts believe a Biden win would weaken the dollar as the former vice-president is expected to spend big on stimulus and to take a freer approach to trade, boosting other currencies at the dollar’s expense. Fiscal spending would likely be even higher if Democrats also take control of the U.S. Senate.

“It appears that markets are pricing in solid odds of a Blue Wave today, implying significant fiscal stimulus and debt issuance seen in 2021,” Win Thin, global head of currency strategy at Brown Brothers Harriman, said in a report.

The dollar index against a basket of currencies fell 0.55% to 93.52. The euro jumped 0.61% to $1.1711, after hitting technical support at $1.1621 on Monday, which was a one-month low. The dollar fell 0.12% against the yen to 104.58 yen.

The greenback was boosted last week on concerns that the election result may not be clear for days or even weeks due to a large increase in mail-in ballots and on possible legal challenges.

Euro/dollar implied volatility surged to 19%, its highest level since the depths of the market mayhem in March, compared with less than 7% on Monday.

Higher risk currencies including the Australian dollar outperformed with the Aussie rising 1.23% to $0.7140, even after Australia’s central bank trimmed interest rates to near zero and ramped up its bond-buying plans.

The Federal Reserve will conclude its two-day meeting on Wednesday. U.S. Jobs data for October is also in focus on Friday.

Dollar dips as investors bet on Biden victory, Reuters, Nov 3

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