Euro dips on French lockdown fears

London

THE US dollar rose against the euro on prospects of a national Covid-19 lockdown in France, with implied volatility gauges in the common currency and the yen hitting multi-month highs as traders positioned for next week's US election.

The greenback fell against the safe-haven Japanese currency, as disappointment that the United States has not yet found a way to push through another round of fiscal stimulus also weighed on market sentiment.

French President Emmanuel Macron was expected to give a televised address on Wednesday, amid media reports that the government may impose a lockdown from midnight on Thursday.

With news that pharmaceutical company Pfizer has not yet been able to determine how well its late-phase Covid-19 vaccine protects against the disease adding to the cautious mood, riskier assets fell across markets.

The euro was down 0.4 per cent at US$1.1753, while the yen rose 0.2 per cent to 104.16 per US dollar, its highest in more than a month.

One-week implied volatility gauges in euro and yen rose to their highest in nearly seven months.

That suggests investors are preparing for sharp price moves, with the biggest focus on the US as it struggles to contain its novel coronavirus epidemic as people vote early in large numbers for what promises to be a pivotal election on Nov 3.

Markets are pricing a high probability of a clear victory by presidential challenger Joe Biden, but some investors are sceptical because the polls did not predict President Donald Trump's win four years ago.

"This is why . . . we have not seen the dollar strengthen as much as a result," said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America. "Investors don't want to go long the dollar ahead of the (vote)," he added.

Legal battles between Republicans and Democrats over how to count votes have also raised the risk that the outcome of the election will be disputed.

After the elections, the market's focus will again turn more towards the sharp rise in coronavirus infections, Mr Vamvakidis added.

The US dollar index - which tracks the currency against a basket of six currencies - edged up 0.2 per cent at 93.31.

The yuan was flat at 6.7171 in the offshore market, with one-week implied volatility in the Chinese currency spiking to its highest since the beginning of 2016. REUTERS