The US dollar gained Wednesday morning amid fears of investors who are not ready to take risks in anticipation of the results of the presidential elections in the US. The trading data shows that market participants are now choosing reliable assets.
Thus, the euro-dollar exchange rate fell to $1.1668 from the previous closing value of $1.1711 per euro. The dollar-yen exchange rate increased to £104.85 from £104.46 in the previous session. The dollar index (the exchange rate of the USD against a basket of currencies of six US partner countries) increased by 0.26%, to 93.79 points.
According to the latest data, Trump is significantly reducing the electoral gap with Biden: 204 to 223. In order to bag the victory, 270 electors are needed. At the same time, it became known that Trump won in Florida, which is one of the most controversial states, where the election outcome was unpredictable until the last moment.
Experts say that if Biden had won in Florida, he would have won the entire race. Now both candidates continue to share states: Trump wins in conservative Indiana and Kentucky, and Biden wins in freedom-loving Vermont and Virginia. In light of recent events, the uncertainty remains high, and we are seeing a correction in risky trading.
In addition to the final election results, investors are also looking forward to the meeting of two major central banks - the Bank of England and the US Federal Reserve, which is scheduled for November 5. Traders are hoping for guidance from regulators in the short and long-term economic outlook amid economic uncertainty.
The instability in world markets is really quite tangible. As of the morning of November 4, stocks and emerging market currencies plummeted amid the first election results in the US. The information that appeared the day before has increased the risk that the results of the presidential candidates will be as close as possible, and the loser will be able to challenge the victory of the opponent. In this case, the uncertainty of the presidential future, frightening for investors, will drag on for a longer period than originally predicted.
For example, the Mexican peso, which has always been considered a key indicator of investor attitude towards elections, fell by more than 3% against the dollar, as a result of which the South African rand fell by more than 1%. The offshore yuan, a major indicator of US-China relations, declined 1% after a recent 0.5% gain amid confidence in Joe Biden's unconditional victory.
The dollar dropped significantly on Tuesday against key competitors, but this morning America's national currency is the strongest in the Big Ten. The dollar index is also growing due to the return of demand for Treasury bonds.
Analysts predict that rates against the dollar will continue, and possibly increase immediately after the presidential election, despite the rise in the number of COVID-19 cases. As a result of trading in narrow ranges throughout most of October, the dollar rose to a four-week high on Friday amid fears over the economic crisis, which could lead to the resumption of quarantine in Europe.
Although traders have cut net short dollar rates over the past week, rates against the USD have exceeded rates for 31 consecutive weeks. Experts predict that this trend will continue. For example, 70% of analysts polled by Reuters said that net short dollar positions will either remain the same or rise immediately after the elections. The rest of the experts insist that they will weaken.
Well, where analysts agree unanimously is that the election results will be the most serious factor in the growth of the dollar in the next few weeks. Even news about the second wave of coronavirus, in the sad statistics of which the US occupies one of the leading places, will probably go by the wayside.
As a reminder, the continued rise in coronavirus cases, which has led to severe restrictions in parts of Europe, forced the European Central Bank to temporarily stop further easing of monetary policy in December, which put pressure on the euro to a four-week low on Friday. In October, the euro fell 0.6% against the dollar.
Some experts went further in their forecasts than others and make proposals about the fate of the dollar when incumbent President Donald Trump is re-elected. In this case, experts stressed that the dollar will strengthen significantly. Trump's surprise victory could well have a tangible effect of shrinking the dollar.
Given the fact that Joe Biden leads national surveys, his election victory is likely to hurt the dollar in anticipation of a quick and impressive package of state support for the economy.
A broader survey of experts by Reuters showed that currency strategists expect the dollar to weaken against most major currencies in 2021.
However, the single currency rose nearly 4% year-over-year and is forecast to rise to $1.18 per month. Rising fears over the economic damage caused by the second wave of COVID-19 drove stocks down and saw a tangible drop in oil prices late last week.
Commodity-pegged currencies sank against the dollar late last month, and some even hit a negative record since early March this year, when the pandemic caught investors by surprise and caused a local apocalypse in the markets.
Analysts predict that this trend will continue this week and the dollar will weaken against most major currencies in the coming year, including commodity-linked currencies such as the Australian and Canadian dollars.
