Dollar Set for Weekly Loss on Stimulus Hopes

The dollar steadied at the end of a poor week in forex exchange on Friday. It shed about a cent against the euro and suffered its largest weekly drop against the yen in a month.  Investors began to bet on a Joe Biden presidency and a big U.S. stimulus.

In the Asia session,  daily moves were slight and mostly in the dollar’s favour. Traders awaited the final U.S. presidential debate, which begins at 0100 GMT.

As campaigning hits fever pitch ahead of election day, markets could be sensitive to any vote-shifting.

The dollar has lifted from Wednesday’s seven-week low. However, it is still about 0.8% lower for the week and in the bottom half of a monthslong range.

Hopes persisted that Congress might pass a stimulus package before the election. Confidence that spending follows no matter who gets elected remained. These have driven a selloff in the bond market in anticipation of more government borrowing.

The prospect of stimulus has supported investors’ mood, selling the dollar through the week. It boosted their appetite for riskier currencies instead. Moreover, underlying caution has also given the safe-haven Japanese yen a boost.

Currency Movements

The risk-sensitive Australian dollar inched 0.1% higher in forex exchange on early Friday.  It is about 0.7% firmer this week. Further gains were capped by a growing expectation that the Reserve Bank of Australia will cut rates in November.

The New Zealand dollar fell 0.l% Friday following a softer-than-expected inflation data. But the currency has gained almost 1% for the week.

The Japanese yen dipped overnight following news that House Speaker Nancy Pelosi said there was progress in stimulus talks. But the Japanese currency is about half a percent higher for the week. The safe-haven yen has ground nearly 3% higher since April.

This week, the euro has gained 0.8%, though it pulled back overnight as coronavirus cases surge in Europe. British, European as well as U.S. Purchasing Managers’ Index figures are all due later on Friday.

Sterling slipped overnight on uncertainty over Brexit outlook. But the currency is up 1.2% this week. It’s clinging on above $1.30 due to hopes that Britain and the European Union can reach a trade deal. That should be before a transition period ends on Dec. 31.

The Chinese yuan drifted just short of a more than two-year high hit earlier in the week.

Analysts said the final U.S. presidential debate may not move markets immediately. But that political uncertainty over the Nov. 3 election meant for a risky environment.