Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Breaking News

Coinbase, Consumer Prices, Chip Stocks: 3 Things to Watch

Bruised dollar may bounce if U.S. election gets chaotic

ForexSep 17, 2020 07:20AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: United States one dollar bills are curled and inspected during production at the Bureau of Engraving and Printing in Washington 2/2

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Some investors are betting that a bout of election-induced volatility may be just the thing to give the battered dollar a reprieve from its months-long decline.

The dollar stands near its lowest level in 16 months after falling more than 9% from its March peak on lower U.S. yields and expectations of comparatively slower U.S. growth. Net futures bets on a lower dollar totaled $32.67 billion, close to their highest point in a decade, the latest data from the Commodity Futures Trading Commission showed.

But the buck tends to rally around U.S. presidential elections, with the dollar index up seven out of 10 times between early September and early December for an average gain of 2.5% since 1980, said Ben Randol, G10 FX and rates strategist at BofA Global Research.

Such a move could be even more dynamic this year, as investors brace for the Nov. 3 election in which results may be uncertain or contested, potentially pushing market participants to sell their riskier investments and head for havens such as the dollar.

"A very tight election and contested result will probably be the spark to get people nervous," said Amo Sahota, executive director at currency advisory firm Klarity FX in San Francisco. "That's positive for the dollar."

The heap of bets on a lower dollar could potentially exacerbate an upside move if a sharp rally forces bearish investors to unwind their trades and buy back the U.S. currency in a phenomenon known as a short squeeze.

"A narrowing race and historical seasonal trends

invite more uncertainty and potential drawdowns in crowded trades. Yet that's a squeeze, not a reversal," analysts at TD Securities said in a recent note.

John Floyd, head of macro strategies at Record Currency Management in New York, is betting that the U.S. dollar will rise against its Canadian counterpart, due in part to election-related volatility spurring investors into haven assets.

Randol, of BoFA Global Research, said the dollar is around 4% undervalued according to the bank's model, which calculates valuation based on interest rate differentials and terms of trade. The bank recently recommended buying the dollar against the Swedish krona and Canadian dollar.

Longer term, the dollar has fewer fans. Expectations that U.S. rates will stay near record lows have dimmed the dollar's attractiveness https://www.reuters.com/article/usa-markets-dollar-analysis/u-s-dollars-woes-are-only-beginning-some-bears-say-idUSKBN25S3KN to income-seeking investors. Others believe that perceptions of a more coherent response to the coronavirus crisis in Europe and Asia will keep investors away from dollar-denominated assets.

Analysts at Oxford Economics, for example, said any volatility-driven upside in the greenback would likely be temporary, predicting a multi-year decline for the dollar.

Richard Benson, co-chief investment officer at Millennium Global Investments Ltd, is short the dollar against the euro and is betting the currency will continue to depreciate in coming months.

That move, however, could be interrupted if it appears that Democratic presidential nominee Joe Biden is giving up his lead in the polls against President Donald Trump, he said. The president is less apt to deliver fiscal expansion and more likely to roil markets with a hard line toward China, making a Trump victory a more bullish outcome for the dollar, Benson said.

"If Biden screws up at a debate or if we get some catastrophic Biden moment, that will cause a short-term knee-jerk appreciation in the dollar, and we're going to have market volatility," he said.

Bruised dollar may bounce if U.S. election gets chaotic
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Forex Harbingers
Forex Harbingers Sep 17, 2020 12:26PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
IF? Hahahahahaha
Rony Joe
Rony Joe Sep 17, 2020 8:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
it is really unreasonable topic. Hahaha. Please think about better one. This is rubbish.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email