Dollar in the doldrums as Biden awaits confirmation (Daily analysis 5.11.2020)

The US election outcome is still not settled, but Biden wants to keep his narrow lead and is set to be confirmed as the next US president. Equities skyrocket and the US dollar goes down in red.

The dollar's weakness turns into a full-scale sell-off. During the last week, the US dollar has declined against its all major peers. The EUR/USD pair has recently confirmed a floor at 1.16 level and enjoys the ride to 1.1850. A clear risk – on pattern is observed. Commodity currencies and the Scandies lead the pack while safe haven currencies enjoy only modest gains. The S&P500 futures have completely recovered the last week's slump and trade only 4% below the all-time high set in September.

The count goes on

At this stage, Biden has more pathways to winning 270 electoral colleges than Trump does, and consequently has emerged as a clear favourite. The Democratic candidate has won in Michigan, has also claimed Wisconsin, which may be recounted on Trump's demand. Biden needs to secure only one from five outstanding states. Nevada, Georgia, Arizona, Pennsylvania, and North Carolina are still counting the votes, and the results from the latter two may not come in before next week.

Regardless, the Senate race will not be settled until January and maintaining the majority by the Republicans seems almost sure. Consequently, instead of a blue wave scenario, we end up with the divided Congress. The greenback (the US dollar) was supposed to be dragged down by the prospects of a huge fiscal package resulting from a Democratic sweep in the coming months. Absent of it, the EUR/USD's upside might be limited due to the second wave of COVID-19, which severeness will decide the scope of the ECB's accommodation and more precisely whether the rate cut is needed.

No news is good news for the sterling?

The sterling has traded on the back foot recently and underperformed. It resulted from the introduction of a renewed lockdown causing deterioration of the growth look. Consequently, there was little doubt that the Bank of England would provide further accommodation. Asset purchases programme was expanded, even more than expected, but the authorities refrained from a rate cut which was feared after the decision to move the hour of the meeting.

The cable (the GBP/USD) jumped above the 1.30 mark, and further gains may be on the table as in the next couple of days the Brexit negotiations should be in the limelight. Some progress has allegedly been finally made, and agreement between the EU and the UK regarding the highly emotional issue of fishing is becoming closer. In the coming days the talks will continue, and the case of a no-deal Brexit is becoming less and less probable.