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Dollar hovers near two-month high amid economic, political risks

Date: 29-09-2020
Subject: Dollar hovers near two-month high amid economic, political risks
LONDON: The dollar NSE -1.47 % hovered near a two-month peak against a basket of currencies on Monday as doubts about economic recovery persisted before a barrage of economic data and political developments in the United States. A rebound in U.S. stocks on Friday has helped curb the ascent of the dollar, considered a safe haven, but signs of slowdown in the nascent recovery from the pandemic and political uncertainties have kept investors on guard.

The dollar index slipped to 94.21. It reached a two-month high of 94.745 last week and posted its biggest weekly rise since early April. Against the yen, the dollar was more subdued at 105.36 yen.

The pound jumped to $1.2896 on hopes Britain could secure a Brexit trade deal with the EU.

The euro rose 0.3% to $1.1661 after dropping to $1.16125 on Friday, its lowest in two months.

"Rising global and notably European risk aversion continue to be clearly U.S. dollar positive, and notably investors entered this period of questioning the risk/reflation/recovery theme stretched on dollar shorts," said Christin Tuxen, head of research at Danske Bank.

Friday's data on U.S. currency futures positions also suggested the dollar had room to rise further, with speculators holding a big net short position in the currency which they could move to cover if the dollar moves higher.

U.S. Commodity Futures Trading Commission's broad measure of dollar positioning showed speculators' net short position rose to $33.989 billion last week, up from $31.524 billion the week before and near its highest in almost a decade.

The flip side of that was a large net long position in the euro, which inched up last week to $27.922 billion.

"We think euro/dollar should find good long-term demand below the 1.1600 area, but really require some better news on the global recovery - effective lockdowns, vaccines, new stimulus - before the euro/dollar rally fully resumes," ING said in a note to clients.

Investor attention may now turn to the first U.S. presidential debate on Tuesday.

"Few people will be trying to bet on the election outcome. At least they will wait until tomorrow's TV debate," said Kyosuke Suzuki, director of forex at Societe Generale.

Meanwhile, worries are growing that the economic recovery is slowing as many stimulus programmes have expired, curbing consumer spending.

This week will bring more data on the health of the world's biggest economy, including consumer confidence on Tuesday, a manufacturing survey and consumer data on Thursday, and jobs data on Friday.

Elsewhere, the Turkish lira briefly dropped 1.6% to a record low of 7.8000 per dollar.

The lira had enjoyed a rare bounce after an interest rate increase late last week, but the gains faded amid scepticism about how it would filter through into market rates.


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