By Peter Nurse
Investing.com - The dollar weakened in early European trade Monday, as traders looked to riskier currencies to play Joe Biden’s victory in the U.S. presidential election amid hope for more fiscal largesse and continued easy monetary policy.
At 3:05 AM ET (0805 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 92.172, falling to its lowest level since early September.
EUR/USD rose 0.1% to 1.1889, a two-month high, USD/JPY rose 0.2% to 103.50, while the risk sensitive AUD/USD rose 0.5% to 0.7290, a seven-week high.
Democrat candidate Joe Biden won the state of Pennsylvania over the weekend, thereby obtaining the 270 electoral votes needed to win the U.S. presidential election against incumbent president Donald Trump. While Trump has refused to concede so far, his remaining hope of overturning the result through recounts and legal actions is a slim one, judging by historical precedent.
Price action suggests “investors are positioning for a post-Trump era, which, with a Fed keeping rates near zero, is seen as a dollar negative,” said ING analysts, in a research note.
Analysts at Nordea point to the likelihood of the Senate remaining in Republican hands, as opposed to the Democrats also claiming a united Congress, the so-called ‘Blue Wave’.
“Compared to a Blue Wave outcome, we should expect less fiscal stimulus, a smaller current account deficit, less inflationary stimulus, meaning the Fed should be even more aggressive,” Nordea wrote, in a research note.
Elsewhere, GBP/USD rose 0.2% to 1.3184, hitting its highest in more than two months, helped by the Bank of England not introducing negative rates while it increased its quantitative easing last week.
Bank of England Governor Andrew Bailey and chief economist Andy Haldane are due to speak later in the day, with the focus remaining squarely on negative rates.
That said, the ongoing Brexit negotiations will also be of keen interest as the Nov. 15 deadline for a trade deal to be agreed between the EU and Britain draws ever closer. The change of control in the White House means that the Brexit project has lost its most vocal international supporter.
Additionally, USD/CNY fell 0.6% to 6.5718, falling to a more than two-year low, with traders hoping Biden’s victory will prompt more cordial U.S.-China relations, as the second-largest economy in the world recovers smartly from its Covid-19 hit.
USD/TRY also slumped, falling 2.7% to 8.2911 as traders react to the decision of President Recep Tayyip Erdogan to fire Governor Murat Uysal over the weekend, replacing him with former Finance Minister Naci Agbal.
The Turkish currency has lost about 30% against the dollar in 2020, a decline that has accelerated since the central bank held back from raising the cost of borrowing at its October meeting.