USD drops as pre-election jitters set in 

The US Presidential Election is three weeks away and investors have finally beginning to feel the jitters. Stocks sold off for the second day in a row also drove currencies lower in the process.  This will be the most dramatic Presidential race in recent history. While most polls show Joe Biden in the lead, investors doubt these polls after 2016 outcome.

Over the past few weeks, equities and currencies rallied on the hope that some type of stimulus would be approved before or shortly after the election. However, now it is looks highly unlikely. The sell-off in stocks Wednesday was sparked by Treasury Secretary Mnuchin’s pessimism – admitting getting something done before the election will be difficult. Meanwhile the longer that fresh aid is withheld from Americans, the more difficult it may be for the recovery to continue. Over the next 48 hours it will become evident if that slowdown has begun.

The USD traded lower against all of the major currencies on Wednesday. The coronavirus pandemic in Europe is worsening. As said in yesterday’s note, the Eurozone economy will be hit hard by the second wave. With the 15th October Brexit deadline looming, GBP traded sharply higher, gaining the title of the day’s best performing currency. GBP has been remarkably resilient. Investors remain optimistic as they continue to believe that the UK won’t give up on Brexit talks. Negotiations are entering a critical stage, but many believe the deadline will be extended.

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