By Peter Nurse
Investing.com - The dollar pushed higher in early European trade Monday, with record numbers of Covid-19 cases in Europe and the U.S., coupled with doubts about a new U.S. stimulus package, prompting traders to turn their back on riskier currencies in favor of safe havens.
At 3:05 AM ET (0805 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 92.972, after dropping almost 1% last week. EUR/USD was down 0.2% at 1.1831, while USD/JPY was up 0.2% at 104.88.
The coronavirus continues to wreak havoc in Europe and the U.S., with both France and America recording a record number of cases over the weekend. Spain has announced a new state of emergency and Italy has ordered restaurants and bars to shut by early evening.
In the U.S., there are few signs of a compromise resulting in a new coronavirus relief bill making its way through Congress. House Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows accused each other of “moving the goalposts” on stimulus legislation in interviews on Sunday, suggesting a new bill before next week’s election is very unlikely.
This week will also see three major central banks hold meetings, as well as economic growth data for both Europe and the U.S..
The Bank of Canada and Bank of Japan are expected to hold fire for now, and so most eyes will be on the European Central Bank, in the wake of hints from senior officials that they see an emerging need for more action.
Additionally, data due out Thursday is forecast to show U.S. economic output rebounded by 31.9% in the third quarter, while third-quarter eurozone GDP data should also see a strong rebound after the 11.8% drop in the second quarter.
“With regard to the ECB, our team expects a strongly dovish message from President Lagarde and plenty of hints about more QE in December,” said analysts at ING, in a research note.
ING is looking for third-quarter eurozone GDP to jump 9.5% on the quarter, but this could prove the high point with lockdowns in Europe broadening by the day.
“This all means that EUR/USD will probably continue to roughly trade a 1.17-1.19 range, rather than pushing on above 1.20 just yet,” ING added.
Elsewhere, GBP/USD dropped 0.3% to 1.3004, but has remained above the 1.30 level amid hope for a trade deal between Britain and Europe. Sentiment was helped by S&P keeping its rating and outlook on U.K. sovereign debt unchanged late on Friday.
Also, USD/TRY rose over 1% to 8.0640, rising above the psychologically-important 8.0 level, extending its slide from Friday after the country’s central bank decided not to lift interest rates to protect the currency, as expected.
The currency has been hit hard by low real rates given inflationary pressures as well as uprisings in the eastern Mediterranean and Caucasus and economic damage from the pandemic.