Tension rises as US election enters home stretch
Tension grew on Monday before Tuesday's presidential election in america, with safe-haven currencies just like the yen and dollar holding firm.
Expected swings in the major currencies climbed with their highest since April as investors waited for the results of a election which will have serious implications for the dollar's outlook over the coming months.
Democratic challenger Joe Biden leads in national view polls, however the race looks close enough in battleground states that President Donald Trump could win the 270 Electoral College votes needed to win. A Biden win is may possibly hurt the dollar, on expectations of a large fiscal stimulus package. A surprise Trump victory could stoke widespread uncertainty for a while.
"Volatility is rising because liquidity for hedges around the election is quite thin. Everyone's the same manner, there's no one selling these things thinking everything's great," said Jordan Rochester, forex analyst at Nomura. Generally, traders are hedging for decline by the euro and a growth by the dollar.
The dollar rose 0.1% versus japan yen to 104.73. One-week implied volatility gauges for the euro and the yen were both above 11%, their highest since beginning of April. A surge in global coronavirus cases continued to weigh on sentiment, with the euro coming under pressure in recent weeks. The dollar held its gains after posting the most significant weekly percentage rise since late September in the previous trading session.
The euro last fetched $1.1648, neutral on the day, having fallen earlier in the session. Based on the latest Commodity Futures Trading Commission data, hedge funds have reduced their long positions in the euro to the levels last seen per month ago. The British pound inched lower on coronavirus worries, after Prime Minister Boris Johnson announced over the weekend a one-month lockdown across England.
Sterling fell to its weakest in two-and-a-half weeks at $1.2854. It was last trading at $1.2919, down 0.3% on your day. In Europe, new COVID-19 cases have doubled in five weeks, a Reuters tally showed, with total infections surpassing 10 million. "The US dollar is continuing to take advantage of the deteriorating outlook for growth in Europe," said Lee Hardman, currency analyst at MUFG. Besides the US presidential election, this week is filled up with economic data, including PMI data from america, euro zone and elsewhere, together with U.S. non-farm payrolls and Chinese trade.
