Dollar Gains as Lockdowns Increase Ahead of U.S. Election

 

The dollar pushed higher in early European trade Monday, with more lockdowns in Europe on the back of the incessant rise in coronavirus cases and the uncertainty surrounding the U.S. election weighing on investor sentiment.

 
At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 94.142, after climbing 1.2% over the last week, its largest weekly percentage rise since late September.
 
 
Elsewhere, EUR/USD fell 0.1% to $1.1641, USD/JPY rose 0.1% to 104.75, while the risk sensitive AUD/USD fell 0.2% to 0.7011.
 
Over the weekend, the U.K. joined Germany and France in reintroducing partial lockdowns to try and curb the spread of the Covid-19 virus, with Europe crossing the stark milestone of 10 million total infections. GBP/USD fell 0.2% at 1.2910.
 
Sterling “could be in for a rough ride,” Nordea said, given “a new nationwide lockdown after a bizarre U-turn by Boris Johnson, unsolved Brexit negotiations and a clear disinflationary vibe despite an already very weak GBP. “
 
The Bank of England holds a rate-setting meeting later this week, and Nordea is looking for an increase of GBP150-GBP200 billion in the bank's asset purchase program.
 
This disappointing news is prompting investors to stick with the U.S. currency, which is often considered a safe haven, although ranges are tight as Tuesday's presidential election keeps financial markets on edge.
 
Democrat candidate Joe Biden has maintained a healthy lead over incumbent President Donald Trump in national polls over the last weekend before the election, but the race appears to be a lot tighter in the important swing states.
 
“We favor USD longs into the election with rising restrictions in Europe and a potential scope for lengthy lockdowns,” Nordea analysts said in a research note.
 
There is also the risk of delayed or contested election results, both of which would lead to heightened volatility, likely benefitting the greenback.
 
The U.S. data slate is pretty crowded this week, although the usually important FOMC meeting and the U.S. labor market report will play second fiddle to the presidential election.
 
“Data-wise, the FOMC should retain a dovish bias on Thursday, being ready to do more should it be necessary, while Friday’s U.S. jobs report is likely to show a further loss of momentum,” said analysts at ING, in a research note.
 
Also, USD/CNY rose 0.1% to 6.6959, with the yuan retaining its recent strength, helped by strong Chinese factory activity data.