Dollar holds ground as U.S. stimulus delay weighs on sentiment

FAN Editor
FILE PHOTO: FILE PHOTO: George Washington is seen with printed medical mask on the one Dollar banknote in this illustration taken
FILE PHOTO: George Washington is seen with printed medical mask on the one Dollar banknote in this illustration taken, March 31, 2020. REUTERS/Dado Ruvic/Illustration/

October 7, 2020

By Julien Ponthus

LONDON (Reuters) – The dollar steadied on Wednesday, ticking down against most currencies after an initial jump triggered by U.S. President Donald Trump cancelling stimulus talks with Democrat lawmakers, a move which increased demand for safe-haven assets.

Trump’s surprise decision to call off stimulus talks until after the Nov. 3 presidential election initiated a selling spree on Wall Street with investors bracing for fresh downside risks for an already shaky U.S. economy.

The initial shock from the announcement eased when the U.S. President later asked Congress to extend $25 billion in new payroll assistance to U.S. passenger airlines.

Sentiment improved overnight in Asia where markets hit a two-week high and U.S. stock futures made their way back to positive territory.

All in all, analysts said the renewed uncertainty over stimulus would encourage investors to trade riskier currencies cautiously.

“This is set to reinstate caution in markets about the prospects of near-term economic recovery, helping the safe haven dollar and keeping cyclical FX soft”, ING strategists wrote in a morning note.

In early trading in Europe, the dollar was last quoted at $1.1754 per euro <EUR=D3>, down 0.18% after a 0.4% gain against the common currency during the previous session.

The British pound <GBP=D3> was quoted at $1.2915, up 0.36% after losing 0.86% on Tuesday.

The Australian dollar <AUD=D3> edged up 0.57% to $0.7142 after tumbling by more than 1.1% on Tuesday.

Traders say the Aussie faces more downside risks due to expectations that the Reserve Bank of Australia’s next move is to cut rates and buy more government debt.

The increased risk aversion, however, did not move the dollar much against the yen, which was last quoted at 105.75 <JPY=D3>, because both currencies tend to be bought during times of uncertainty, analysts say.

Highlighting the potential danger of no additional stimulus funds to prop up the economy, Federal Reserve Chair Jerome Powell on Tuesday warned that the U.S. economy could slip into a downward spiral if the coronavirus is not effectively controlled and called for more economic assistance.

Traders will look to minutes from the Fed’s most recent meeting and comments from several Fed speakers later Wednesday for further signs of how central bankers view the outlook.

(Reporting by Julien Ponthus; Editing by Toby Chopra)

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