Investors dumping USD before US Election

Investors are dumping USD ahead of next Tuesday’s US Presidential election. This will be a historic event for the country, the world and the financial markets. The stakes are high and the outcome is uncertain. There’s a very good chance that the next President of the United States won’t be decided on November 3rd which explains why investors are compelled to reduce exposure and cut positions ahead of the election especially, after record breaking gains in stocks this year.

A flurry of US economic reports were released Tuesday – none of which lent much support to the greenback. The biggest news of day was the confirmation of Judge Amy Coney Barrett to the Supreme Court which could reshape the court for the next decade and play a major role in how mail-in ballots are counted. Republicans are pushing for a reconsideration of the Pennsylvania mail in voting case which is important for the markets because it could affect election results.

The broad based move out of USD is the only reason why EUR/USD is still above 1.18. Daily coronavirus cases in Italy hit a new record high on Tuesday. While cases in France and Spain are lower, the recent surge has both countries considering more restrictions. The French government will be holding meetings this week to determine what type of response is needed for this “brutal second wave.” There are reports that they are considering full lockdown for Paris, Lyon and Marseille.

Experts don’t expect measures this drastic in Europe as they are reluctant to sacrifice their economies but a shorter lockdown could be possible. The European Central Bank is scheduled to meet on Thursday and given recent developments they’ll have no choice but to set the stage for further easing this year.

The Bank of Canada (BoC) is not expected to change monetary policy on Wednesday. When they last met in September it was believed that the economy was recovering as expected. However, it has been felt that ongoing policy accommodation is needed to support a protracted and uneven recuperation. Data hasn’t been great since then with retail sales growth slowing and consumer prices falling another month. Job growth was very strong but the IVEY PMI index was much weaker. In light of rising domestic virus cases and the raging pandemic abroad, the BoC is likely to sound more cautious.

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