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Monday saw the steepest stock market sell-off in a month and a
bond rally, but foreign exchange market activity has remained
relatively muted, with price moves in early Tuesday limited.
That said, analysts warned investors were clearly cautious after
the United States, Russia and France all hit new daily records
for coronavirus infections. They said prices were not moving
much because of a reluctance to build positions in the run-up to
the U.S. Presidential election on Nov. 3.
After initially falling, the euro was up 0.1% by 1130 GMT to
$1.1818 <EUR=EBS>.
The dollar index, which measures the greenback against a basket
of currencies, edged slightly lower to 92.959 <=USD>.
The yen and the Swiss franc, both of which investors tend to
flock towards when nervous, were mixed, with the yen higher but
the franc falling slightly <JPY=EBS> <CHF=EBS> <EURCHF=EBS>.
"Many sources of uncertainty are still preventing clearer trends
from emerging," UniCredit analysts said in a research note.
"The impasse on both U.S. budget talks and Brexit negotiations,
as well as the implications of rising COVID-19 infections on
4Q20 GDP growth, play in favor of more euro-dollar and
sterling-dollar stabilization for now," they said, pointing to
levels of "just above $1.18 and $1.30, respectively."
For a graphic on Euro vs U.S. dollar:
https://fingfx.thomsonreuters.com/
gfx/mkt/rlgvdxqqrvo/euro%20dollar%20oct%2027.PNG
The usually risk-sensitive Australian <AUD=D3> and New Zealand
dollars <NZD=D3> traded higher.
The European Central Bank meets on Thursday but analysts are not
expecting any fireworks and say market reaction will be limited.
"Like most of us, ECB policymakers are in stasis. Triggering a
big market response so close to an important U.S. election would
be tough regardless of the financial and economic backdrop,"
Stephen Gallo, European Head of FX Strategy at BMO Capital
Markets, said.
A week out from the U.S. election, national polls give Democrat
Joe Biden a solid lead but the contest is much tighter in
battleground states that could decide the outcome.
Analysts regard a Biden victory, and especially Democrat control
of the Senate, as negative for the dollar since it is expected
to deliver big stimulus spending that would boost investor
sentiment and drive demand for riskier currencies.
Sterling <GBP=D3> slipped overnight but was back above $1.30 on
Tuesday at $1.3038. It was marginally higher versus the euro at
90.655 pence <EURGBP=D3>.
Negotiations between Britain and the European Union over a
Brexit trade deal continue but analysts say the pound is
unlikely to gain much should an agreement be made.
(Editing by Mark Potter)
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