Dollar steadies as trading buffeted by US stimulus

Reuters TOKYO | Updated on October 22, 2020

The U.S. dollar steadied against most major currencies on Thursday as U.S. stimulus talks remained the focus for markets with trading buffeted over recent days by the extent of progress made on the potential size of the aid package. The dollar index was nearly flat against a basket of currencies at 92.801, having marked its lowest level since Sept. 2 overnight.

On Wednesday, the dollar weakened after U.S. President Donald Trump and House Speaker Nancy Pelosi boosted hopes an agreement on stimulus was close, sparking demand for riskier assets. For a while, the pattern has been that when stimulus talks stalled, equities fell and the dollars were being bought due to risk-averse sentiment. But with optimistic headlines like these, the market is inclined to shift to risk-on mood and sell the dollars, said Daisuke Karakama, chief market economist at Mizuho Bank. But prospects remain dim for the Republican-controlled Senate to approve any aid before the November 3 election.

Nancy Pelosi said before starting talks with Treasury Secretary Steven Mnuchin that there was still a chance for a deal despite resistance from Senate Republicans, though she acknowledged it might not pass until after the election.

Separately, Federal Reserve Governor Lael Brainard said the biggest risk to her outlook for economic recovery was that fiscal support from the federal government would be withdrawn too soon. Analysts said the dollar was also pressured by surge in currencies such as the sterling, which jumped to a six-week high overnight after Britains chief Brexit negotiator said talks with the European Union will resume on Thursday afternoon.

Against the greenback, the pound steadied at $1.3134 in early Asian trade. The euro edged 0.11% lower against the dollar to $1.8465, a fraction below a one-month high of $1.8805 hit on Wednesday. Traders are also awaiting the final presidential debate between President Trump and Democratic rival Joe Biden later in the day, with the key feature this time around being a mute button to allow each candidate to speak uninterrupted. The Japanese yen was little changed at 104.68 against the greenback, having marked a four-week high overnight. The Australian dollar eased as E-mini futures for the S&P 500 lost more than 0.6%; the Aussie was last fetching 0.7105, while the kiwi fell 0.32 to 0.

Published on October 22, 2020

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