US dollar slips as markets await presidential debate

London

THE US dollar index slipped from recent two-month highs on Tuesday, as markets waited for the first debate between the US presidential candidates, signs of progress in US fiscal stimulus talks, and economic data including German inflation.

After racking up its biggest weekly gains since early April last week as markets turned cautious and sought safer assets, the greenback gave up some gains on Monday and edged down further on Tuesday, ahead of the debate between President Donald Trump and Democratic challenger Joe Biden. The 90-minute televised debate at 9pm ET will be watched by investors looking for a steer on the candidates' prospects.

ING strategists told clients in a note that a rise in Mr Trump's perceived chances was likely to boost the US dollar, "although the non-negligible risk of a contested outcome (along with the ultra-dovish Fed) may keep the dollar's upside somewhat capped in the run-in to the vote".

Commerzbank FX and EM analyst You-Na Park-Heger said the question of whether Mr Trump would accept the result if he was defeated, or instead trigger a period of uncertainty, was the decisive factor for the dollar. "The debate is unlikely to provide any new insights in this respect and we therefore do not expect it to move EUR-USD in a major way," she wrote.

At 1104 GMT, the greenback was at 94.033 against a basket of currencies, down around 0.1 per cent on the day. Craig Erlam, senior market analyst at Oanda, said that the dollar rebound could continue in the short term, and that Tuesday's pause could be due to month-end profit-taking, as investors wait until after the debate to enter new positions. "I think there is going to be an overall view of 'step aside' as far as today is concerned - sit on the fence, let's just see how this evening unfolds," he added.

European shares were down, but riskier currencies strengthened, a move that Mr Erlam said was driven by the US dollar. The New Zealand dollar was up 0.5 per cent at 0.6583 and the Australian dollar up 0.6 per cent on the day at 0.71135, both recovering from sharp falls last week. The yen was steady against the US dollar at 105.615 at 1055 GMT.

Markets were also waiting for developments in talks over aid for people affected by Covid-19 in the US. US House of Representatives Speaker Nancy Pelosi said on Monday that Democratic lawmakers were unveiling a new US$2.2 trillion fiscal stimulus bill, which she said was a compromise and less costly as it covers a shorter period of time. REUTERS