Major Eurozone's economies are facing reintroduction of lockdowns, and the number of coronavirus cases in the US rises sharply. The return of double-dip recession fears in Europe combined with the dissolution of all hopes for a fiscal deal in the US before the election result in an extremely nervous beginning of the week.
Equities experienced a strong sell-off with DAX and Dow Jones Industrial Average indexes plunging respectively by 3.7% and 2.3% on Monday. Leading companies also add to COVID-related worries. SAP, a leading German software maker, lowers its revenue forecasts and admits a new wave of restrictions to dampen sales in the first months of the next year.
The US dollar advances within recent ranges
In such an environment the dollar outperforms as investors seek safe havens. Increasing demand concerns combined with rising OPEC production numbers pushed crude oil benchmarks sharply down and consequently, some commodity currencies trend lower with the loonie (the Canadian dollar) emerging as a clear underperformer. However, the US dollar's advance against other developed markets currencies shows no signs of panic. In most cases, last week's ranges prevail. The EUR/USD pair trades heavy but remains above the 1.18 mark. Similarly, the GBP/USD pair's exchange rate bounced higher from the 1.30 area. Despite the risk assets meltdown, the USD/JPY pair trades 0.3% above the last week's lows. The currency pair has so far failed to recover above the 105.00 threshold, and risks remain poised to the downside. Emerging markets currencies continue to trade poorly. The Turkish lira set new record lows once again, this time as rising geopolitical tensions are cited while CEE3 currencies are dragged down by a rapidly worsening COVID-19 situation.
One week to go
The US election is exactly one week ahead. According to predictions, not only Joe Biden is emerging as a clear favourite, but also Democrats are very likely to both control the House and win the Senate. A landslide Biden's victory should be positive for risk appetite and clearly negative for the dollar. Firstly, it would prevent Donald Trump from contesting the outcome. Secondly, it would put an end to fiscal stimulus negotiations. One should bear in mind that Trump won the previous election with a margin amounting to nearly 80 votes despite Clinton comfortably leading the polls into the vote. That is why the market participants are torn between positioning themselves for a clear Democratic sweep and remaining cautious.