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Dollar Up Over Shock Trump Cancellation of Stimulus Talks

ForexOct 06, 2020 10:09PM ET
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By Gina Lee – The dollar moved upwards on Wednesday morning in Asia, with investors digesting U.S. President Donald Trump’s shock cancellation of talks on the latest stimulus measures.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged up 0.19% to 93.922 by 10:02 PM ET (2:02 AM GMT).

The cancellation destroyed the sense of calm regained in the market after he was discharged from Walter Reed National Military Medical Center on Monday after being treated for COVID-19, and decreased risk appetite as hopes for the stimulus measures to be passed before the Nov. 3 presidential election evaporated.

Trump’s move also increases the downside risks to the U.S. economy, which was already shaky, but could increase safe harbor flows into assets such as the greenback.

“The reaction is a type of risk-off trade to buy the dollar and the yen against other currencies,” Mizuho Securities chief currency strategist Masafumi Yamamoto told Reuters.

“Without additional stimulus, the U.S. economy will slow, and the global economy will slow,” Yamamoto warned.

Trump, who is still in recovery from COVID-19 and the virus’ highest profile patient remains under medical surveillance, cancelled the talks with Democrats until after the election via a tweet. However, with the number of COVID-19 cases rising in parts of the U.S., the cancellation puts the country’s economic outlook in serious jeopardy.

Federal Reserve Chairman Jerome Powell sounded the warning bell on Tuesday in his keynote speech to the National Association for Business Economics (NABE) conference a mere hour before the Trump bombshell. Powell warned that the U.S. economy could slip into a downward spiral if COVID-19 is not effectively controlled and called for more economic assistance.

European Central Bank (EBC) chief economist Philip Lane also delivered a keynote speech to the conference.

Both the Fed and ECB will release minutes from their respective September meetings later in the day, with investors looking to comments from several Fed speakers over the coming days for further clues to the central bank’s outlook.

The USD/JPY pair inched up 0.06% to 105.68.

The AUD/USD pair edged up 0.16% to 0.7116, steadied earlier in the session after falling over 1% on Tuesday in the wake of Treasurer Josh Frydenberg handing down a budget that forecast an AUD213.7 billion ($152.87 billion) shortfall in fiscal 2021 and pushed debt and deficit to a peacetime record.

The Reserve Bank of Australia (RBA) leaving its rates unchanged at 0.25%. However, expectations that the RBA’s next move could be to cut rates exposes the AUD to more downside risks.

Across the Tasman Sea, the NZD/USD pair inched up 0.02% to 0.6587 The USD/CNY pair remained at 6.7908, with Chinese markets closed for a holiday.

The GBP/USD pair inched up 0.04% to 1.2883, with even optimism over the U.K.’s informal divorce talks with the European Union (EU) failing to shield the pound from the dollar’s gains.

Dollar Up Over Shock Trump Cancellation of Stimulus Talks

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