Dollar loses ground as Biden inches closer to White House

Published November 5, 2020
A currency trader stands near the screen showing the foreign exchange rate between US dollar and South Korean won at the foreign exchange dealing room in Seoul on November 5. — AP
A currency trader stands near the screen showing the foreign exchange rate between US dollar and South Korean won at the foreign exchange dealing room in Seoul on November 5. — AP

The dollar slipped to its weakest level in more than two years against the yuan and eased against other Asian currencies as Democrat Joe Biden edged closer to the White House in a nail-biting US presidential election.

Financial markets, however, were braced for days or even weeks of uncertainty as Republican incumbent President Donald Trump has opened a multi-pronged attack on vote counts in several states by pursuing lawsuits and a recount.

That could hamper the dollar in the short run, traders say.

Elsewhere, sterling fell against the dollar and the euro after a media report that the Bank of England, which announces a policy decision later on Thursday, is considering negative interest rates.

The Federal Reserve, which is expected to keep policy on hold on Thursday, is also in focus as traders navigate market volatility in the wake of a knife-edge US election that has pushed up the yuan and the Mexican peso.

Biden has claimed the pivotal Midwestern states of Wisconsin and Michigan. Late reporting showed the former vice president with a lead in Nevada and Arizona, while Trump held a lead in Georgia and Pennsylvania.

Expectations that a Biden administration would strike a slightly softer tone on trade policy is likely to weaken the dollar against the currencies of countries that often faced the threat of tariffs during Trump's administration, analysts said.

“The moves in the yuan and the peso show that the market is trying to price in a Biden victory,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“For slightly different reasons, we could also see the euro gain against the dollar.”

The onshore yuan briefly rose to over a two-year high of 6.6381 per dollar, extending its recent gains as China's currency has become a popular trade to bet on a Biden victory.

Emerging market currencies such as the Malaysian ringgit and the Indonesian rupiah also rose against the greenback.

The dollar index against a basket of six major currencies stood at 93.350, little changed from the previous session.

The euro bought $1.1736 on Thursday, steady from the previous session. The British pound fell 0.25 per cent to $1.2960.

Against the euro, the pound fell 0.33pc to 90.55 pence. The dollar was little changed at 104.33 yen.

Even if Biden manages to surmount the legal challenges from Trump to become the next president, Republicans look likely to retain control of the Senate and can use that to stymie Biden's agenda — another complicating factor for currency traders.

Read: Republicans on track to dash Democratic hopes of US Senate majority

Some analysts said Republican control of the Senate would prevent a Biden government from raising corporate taxes, which is positive for equities.

However, a divided government also decreases the chances of big fiscal stimulus, which could be seen as a negative, other analysts said.

The Mexican peso, which had taken a hammering from the Trump administration's hard line on trade, was little changed at 20.96 per dollar following a 0.9pc gain on Wednesday.

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