Sep 29, 2020

Currencies | The Dollar: Dollar slides in flows-driven market; investors await U.S. debate


3-4 minutes - Source: CNBC

U.S. dollar bank notes are arranged for a photograph on September 7, 2017 in Hong Kong.

U.S. dollar bank notes are arranged for a photograph on September 7, 2017 in Hong Kong.

studioEAST | Getty Images

The dollar on Tuesday fell from last week’s two-month highs, weighed down by currency flows in the options market as well as for month end, with investors also capitalizing on recent gains in the greenback ahead of the first debate between two U.S. presidential candidates.

“Today the market is mostly flows-driven, options-related and month-end flows that have pulled the dollar lower,” said Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto.

There were FX options-related flows that bet on the downside in the dollar versus the yen as well as the upside on the euro against the Japanese currency, Bregar said. The euro/yen options have pulled euro/dollar higher.

Some analysts also said investors may also be taking profits on recent dollar gains ahead of the first debate between President Donald Trump and Democratic challenger Joe Biden.

The 90-minute televised debate at 9 p.m. EDT (0100 GMT) will be watched by investors looking for guidance on the candidates’ prospects.

“The debate lurks as a potential catalyst for the dollar, particularly if the president can improve his underdog status,” said Steven Jon Colangelo, FX dealer at Western Union Business Solutions.

That said FX option traders are not pricing in any significant risk related to the debate. Implied volatility was no higher than it was early Monday, when options expired Tuesday - before the event.

In mid-morning trading, the dollar index fell 0.3% to 93.901 , after hitting a two-month peak on Friday.
The greenback also added to losses, as investors felt a little more confident getting out of the safe-haven currency after data showed U.S. consumer confidence rebounded more than expected in September, as households’ views of the labor market improved.

The euro firmed across the board, rising 0.5% against the dollar to $1.1727 and 0.6% versus the yen to 123.84 yen.

European Central Bank policymakers are increasingly divided over how to steer Europe’s economy through a second wave of COVID-19 infections.

The dollar fell to a one-week low against the Swiss franc and was last down 0.5% at 0.92 franc .
Markets were also waiting for developments in talks over aid for people affected by the coronavirus in the United States.

U.S. House of Representatives Speaker Nancy Pelosi said on Monday Democratic lawmakers were unveiling a new $2.2 trillion fiscal stimulus bill, which she said was a compromise and less costly as it covers a shorter period of time.

Sterling, meanwhile, rose on hopes for a Brexit deal and the Bank of England’s deputy governor saying he thought the floor for the central bank’s key interest rate was 0.1%.

The pound was last up 0.4% at $1.2883.

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